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Pretirement: What Is It and Why Should You Care?

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Pretirement is a term being proposed to describe a phase of life between career and retirement. Pretirement is a process that takes place over years, even decades, versus a single decision to retire. It is characterized by cutting back on work earlier in life, but continuing some work indefinitely.

Why do we need this new word? What’s wrong with the current paradigm?

The standard path through life is well known. We dedicate the first couple decades of life to education. The majority of our adult years are devoted to our careers. We then retire in our golden years.

We all know the game, but few play it well. A study by the Economic Policy Institute shows the median retirement savings for those approaching traditional retirement age is about $17,000. Most people are ill prepared financially for retirement.

A small but growing FIRE (Financially Independent, Retire Early) movement figured out how to beat the game.

Simple math shows you can live below your means and build wealth quickly. The relative frugality that allows saving a large percentage of income simultaneously leads to a lower-cost lifestyle. The savings can sustain that lifestyle indefinitely.

However, many who are financially able to retire early don’t retire by the standard definition —  leaving the workforce completely. Many of us realize a life without meaningful work is the wrong goal.

A new paradigm is necessary to address the fact that our current way of planning for retirement may not be working at either end of the spectrum. We need to look at how we got where we are, what a new “pretirement” phase of life means and planning implications of a new paradigm.

Origins of Retirement

Mary-Lou Weisman outlined the history and evolution of retirement in the New York Times. Understanding this historical perspective sheds light on many problems with modern retirement planning.

German Chancellor Otto Von Bismarck introduced retirement in the 1880s to gain political favor. He arbitrarily defined 65 as the retirement age when people could receive financial benefits from the government. It was a mostly symbolic gesture at a time when few people lived that long.

A few decades later, physician William Osler combined “scientific” observations about aging with economic rationale to advance the idea of retirement. He proposed the idea that peak work years occured between ages 25 and 40. Workers older than 40 were “tolerable.” After age 60, the average worker was “useless.”

From Osler’s viewpoint, a worker wouldn’t choose to retire. Instead, older workers should be retired to make room for younger, healthier and more productive ones.

Evolution of Modern Retirement

Modern ideas of retirement evolved against this backdrop. Franklin Roosevelt proposed the Social Security Act in 1935. At that time the average life expectancy was only 61 years old.

It was also thought that older workers should welcome retirement. Eleanor Roosevelt said, “It means so much to sit in the same chair you sat in for a great many years.”

Assumptions that Social Security and pensions would have to support retirees for only a few years were wrong. Since 1935, average life expectancy has increased by over a decade.

People who reach age 65 have a 50/50 chance of living another 17 years. Increased life spans strain social security and pensions and shift financial responsibility for retirement to individuals who are often ill prepared to handle them.

Simultaneously, the assumption that people will be happy sitting in their “same chair” has also not played out. Neither has a satisfying life of golf courses and beaches presented in retirement planning brochures of financial institutions.

Many retirees suffer depression and physical health issues as they withdraw from work that had given life purpose, meaning, and a reason to be active.

Pretirement Trends

Pretirement is a term that is most commonly found among Brittons. A study of 2,000 people between the ages of 50-80 found many people in Britain are cutting back on work earlier in life, but continuing to work later in life.

In the survey, approximately ⅓ of respondents began the transition from full-time work to pretirement between the ages of 50 and 54. At the same time, nearly half of respondents over age 65 continued either regular paid or volunteer work.

There is little use of the word pretirement in American culture. However, we can observe similar trends.

The growing FIRE movement is consistent with people looking to leave their career in search of more fulfilling activities earlier in life.

The concept of FIRE has emerged against the backdrop of an American “retirement crisis.” The inability of many Americans to retire means many older workers have no choice but to continue to work beyond traditional retirement age.

The concept of pretirement creates new opportunities and challenges for financial planning which are different than planning a traditional retirement.

Why Choose Pretirement?

Logically, pretirement makes sense. It allows us to be creative and flexible, matching work to changing life situations and needs.

Retirement is a one size fits all system. It evolved out of an idea thrust upon us by governments and faulty science. Most have blindly accepted this model.

Roger Whitney, author of the book Rock Retirement, compares traditional retirement to a light switch that has only on or off positions. He proposes an alternative model as a dimmer switch. You can adjust the amount you work and earn up or down to match your wants and needs.

This alternative gives options for creative planning that allow us to mitigate risks inherent to retirement. Traditional retirement planning models all include elements of uncertainty.

Having even small amounts of income allows us to mitigate sequence of returns risk and longevity risk. This allows you to start the transition to retirement sooner, with more flexibility and security.

The biggest challenge I see among people looking to retire early is obtaining affordable health insurance. Pretirement allows for work options that can provide health care through an employer. Earned income can also help cover unpredictable medical costs.

Traditional retirement planning often focuses too much on numbers while neglecting or underestimating the “softer” side of planning. We leave behind a big piece of our lives and identities when we leave our careers.

It’s important to think about where we’ll find purpose in retirement. For many, purpose comes through work. This is possible with the alternative paradigm of pretirement.

Pretirement has many advantages compared to traditional retirement. So why don’t we all just plan to work less sooner, but continue working longer? Should we retire the ideas traditionally associated with retirement?

Downside of Pretirement

These are great questions for readers of an early retirement blog, who are mostly saving aggressively and working toward financial independence. We should all question the assumption that traditional retirement with no work and no income is what we’re really seeking.

The concept of retirement is imperfect for many people. However, pretirement is not a panacea.

Anyone actively planning and saving toward a secure early retirement is not normal. Normal in our society is to spend most or all of what you earn and save little toward retirement. And this normal occurs among a population that accepts the traditional idea of retirement.

People assume they are going to retire. Yet most don’t save enough and many save nothing. So what are the odds that people will save if they plan to work forever and never retire?

In this context, the idea of pretirement can be harmful if it causes people to save even less than they already are. At best, pretirement is just flowery language.

“Chase your passion”. “Find something you love to do and you’ll never work another day in your life.”

These make great bumper stickers. But they ignore reality.

Work: Optional or Required

Work is a necessity for those without the means for traditional retirement. Having to rely on the ability to earn income can be restrictive, risky and expensive.

You limit life options when you need to earn ongoing income. It requires layers of insurance to protect against events that would prevent ongoing paid work.

It’s vital to remember that many people don’t choose to retire. Jobs are terminated. Businesses fail. Health is not guaranteed. Family situations arise.

While we may never desire full retirement with no work and no income, we need to plan for one. The ability to work and earn income is never guaranteed, so relying on the ability to continue to work during an indefinite pretirement is not wise.

Good, But Not Perfect

We continue to redefine retirement to align financial planning with current realities. Life expectancy is increasing. This creates the need for ongoing physical and mental activity as we age. Living longer stresses social systems many have traditionally relied on to support them in retirement.

Early retirees need to plan 40-50 years into the future. This is impossible to do with any certainty.

Unknown and uncontrollable political and economic conditions will affect future market returns, inflation and taxes. We also can’t predict future health care costs, given instability in our system and uncertainty with our own health as we age.

Pretirement, paired with some degree of financial independence, is an interesting concept that deserves more exploration to address the challenges of modern retirement. However, it is not a replacement for good retirement planning.

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Comments

  1. Dave @ Accidental FIRE says:

    I guess my transition to part-time at my main job is the start of my preretirement. It’s allowing me to start businesses, and if they keep growing I’ll simply be transitioning to another career. That’s not a bad fate, especially since the new career has me working for myself.

    • Chris Mamula says:

      Agree that having many options and little downside risk is a far bigger benefit than retiring for those of us pursuing FI at an early stage in life.

  2. Pete Siegel says:

    Many years ago, I saw first hand a somewhat different model. A (large) number of friends, working for a major company, were “retired” by their company in their 50s and 60s, with a good severance package, but little chance of ever getting the kind of work they had had before. Earlier in their careers, these folks were hands-on technical folks, but had long since become administrators and planners. Once they were laid off, instead of looking for a lower level position (competing with young people who really needed the jobs), many of these folks went to volunteering full-time. They went to their kids’ or grandkids’ schools to offer to build out their school system IT networks and wireless for the cost of materials; they collected up like-minded individuals and soon trained college students to continue their work; they flew to other countries to help build clinics or schools; and they got busy using their planning skills to help schools or charities raise money.

    In short, these folks “pretired” by behaving like they were working, because they were, but putting every bit of their enormous talent and energy into volunteer work– always on their own terms. Again, there were thousands of these folks and I expect that there are tens of thousands of others who made the transition not to golfing or sitting in a chair, but helping others with the same organizational skills and focus they used for their paying jobs. You’d be amazed how differently it feels to use your work skills in ways that impact a food bank or school or needy family, especially when you are “in charge”, rather than dabbling around the edges.

    I don’t criticize those who have decided on a hybrid work “pretirement” strategy and in many cases, the high cost of medical care makes it prudent. I’d just like to add to the mix that the same long-haul discipline you espouse might allow you not to dabble in making a real difference, but to create a new career where you are in charge of your own work plan– where every ounce of energy you put in has great value to others.

    • Chris Mamula says:

      Thanks for sharing that Pete. Sounds awesome.

      Again I think the key is that either due to good preparation, the generous severance received or some combo of the two that was possible. Unfortunately, many people have little saved and so something like what your friends did is not possible. That’s why this approach is really appealing when combined with the idea of aggressively pursuing some degree of financial independence. Unfortunately many lose their jobs and don’t have those types of options.

  3. One term that is conspicuously absent is “semi-retirement” (which may be entirely synonymous with pretirement) and which I think is more in use in Canada than “pretirement” and perhaps more than either term is used in the US? In any case, the concept does not strike me as novel in any sense. In the case of many FIREees, either of these terms better describes their situation than “retirement” does.

    • Chris Mamula says:

      I largely agree with you Dee. The distinction I’ve seen from others who propose this new phase of life is that semi-retirement is kind of a one way road heading toward full retirement, where pretirement is really whatever you want to make of it. May focus on simply cutting back in same career, choosing a new career path, working strictly in a volunteer capacity, etc with no definitive plan to retire until much later in life or never at all.

  4. Ed Baxter says:

    Why is there this need to create a named category for what one is doing at any given time during one’s life? Is the
    need to belong to “a group” that important?

    A person does a task for pay (or not) depending on the need for money. As the need decreases, the amount of pay
    associated with a given task becomes less important – until such time as one can manage with “volunteering” time. It’s
    still time spent “doing” something, whatever it is – for a lot of pay, a little pay, or none at all – in forms of payment that are monetary, emotional, etc. – whatever. Why should a named category need to exist? Is it THAT important to be a ___, whatever a ____ is?

    • Chris Mamula says:

      Two reasons Ed:

      1.) As someone who writes about a more extreme version of early retirement, I think it’s important to be transparent and honest to what that actually means. If you read regularly, when I tried to do that about a month ago there was a very strong, mixed and polarizing reaction as to whether what I’m doing is “really” retirement.

      2.) As a person planning for retirement, it’s important to define what the ultimate goal that you’re planning for is. As noted in the article, I think the traditional view of retirement as a time when you completely stop work is probably not a good goal for most people. It’s important to know why that’s the goal for most and if it is the right goal for you. Then if we’re going to shoot for something else, it’s important to define what that is and what the planning implications are of pursuing an alternative option, because every choice we make has consequences, good and bad. In this case, I’m not a big fan of the word pretirement for everyone, just as I am not a fan of the idea of retirement for everyone. That term lumps together those who choose to work longer for meaning with those that need to work longer because they have no other choice. They are clearly not the same thing just as a person who retires at 70 with social security & Medicare is not the same as a FIRE person pulling the plug on their career at 40.

      Language matters, because it adds nuance that allows us to have better conversations and learn from one another. This requires we’re speaking the same language.

  5. Good Article Chris, did you get tired of us TROLLS questioning rather you really retired or not?? FIPR does not have the same ring to it but definitely fits what most early retirees are doing. I just read an article by Mr. Money Mustache and he has built himself a great business, so when I see him still doing interviews about how he retired at 30, it makes me laugh.
    I am in the pretirment phase, working only part time waiting for my wife to get the working bug out of her system. I will start using this term and see how it goes, I once made good money now I work for minimum wage and for something to do, I get funny looks when I tell people what I used to do for a living, they almost always say “what are you doing here?” and I can’t say that I am retired, when I am working along side someone that has many years to go. Thanks again always enjoy the articles.

    • Chris Mamula says:

      Ha. I actually enjoy dissenting opinions and the conversations that ensue, as long as they remain respectful.

      Good luck in your “pretirement”.

  6. Chris, Nice article covering the rather enormous and overlooked range of possibilities “liberated” by adopting a dimmer switch mentality vs. the usual simplistic on/off switch model. Pre-retirement. Bravo and thanks!

    • Chris Mamula says:

      I actually stumbled upon the term when reading about Whitney’s analogy that you turned me onto in the comments of a recent post. While not without flaws of its own, hopefully this will expand people’s thinking and give another tool for the tool belt.

      • Awesome. Glad the comment was useful. We’re experimenting with the dimmer switch now. My wife left her full time job in March at age 55, which meant she could tap her TSP, while I continue to work full time at age 52. She’s had a nice break and is starting to apply for jobs again.

  7. I wanted to do a pretirement by taking a 3 month sabbatical. Our company allowed workers a sabbatical every 5 years of work and I was there for 11 years. But they didn’t go for it.

    But what they did go for was giving me a severance package that included a severance and all my deferred stock and cash comp over the next 5 years. So in a way, the next five years after I left work was like pre-retirement where I collected a severance and also consulted PT 15-20 hours a week with a company fintech companies in SF. It was fun!

    Sam

    • Chris Mamula says:

      I actually just wanted a traditional good old retirement where I completely stopped working. In the process of trying to plan one with a potential 50-60 year time frame, I realized how hard it is to do and got caught up in fears and doubts and found it unappealing. I agree the idea of “pretirement” where you choose to work on things you want to do, though I never actually heard it called that until the past few weeks, sounded a lot more fun and less restrictive.

  8. Chris, this preretirement is me…and it’s wonderful! At a point in my life where my time was more valuable than extra money. Very fortunate to have an opportunity cut back my hours from 40 (really 50🙄) to 30 per week. (30 hours covers my expenses). Much less stress, able to spend more time with my grandkids (while they’re still little and want to hang with me😊). Able to maintain health benefits at a prorated cost. My company gets a less stressed, happier employee—win/win!

    • Chris Mamula says:

      Pat,

      I think this model makes a ton of sense for a lot of people as both a way to mitigate financial risks and give life more balance and purpose. Thanks for sharing and happy to hear it’s working so well for you.

      Chris

  9. Chris

    Thanks for sharing your thoughts on the topic.

    Last year, I actually attempted to enter pre-retirement, semi-retirement, part time employment, or whatever other term anyone may prefer. It reduced a lot of anxiety over the “what if’s” of early traditional retirement. It also allowed me to decrease the pressures I placed on myself in that mad dash to reach FIRE.

    I left a full time position for a three day a week job. I stayed on with the full time employer on an as needed basis because, well, why not. It was also a little insurance to ease my mind as I made the transition.

    Notice that I used the word “attempted” to pre-retire. After I made the transition, I was offered so much work (at higher hourly rates) that I made more money last year than I would have if I had stayed on full time with the original employer. I took advantage of it.

    So, I work a little less and have a similar income (though I do have less benefits). However, something very important was gained in this transition… A sense of control over my situation. I choose to work when and under the circumstances that I see fit. It changed my outlook on work immensely.

    So, I will continue to work on that transition into pre-retirement. As you point out, it is a great alternative to traditional retirement to ease fears regarding funding for health Care, maintaining a sense of purpose, etc. In the meantime, I’m enjoying the increased sense of control that financial independence has provided me.

    Thanks again, it’s always good to know that there are others out there pondering and grappling with the same issues. These discussions are helpful.

    Regards,

    Skip

    • Chris Mamula says:

      Thank you for sharing Skip. I write about different approaches to retirement, because it is something I struggled with and to a degree my wife still does. It is freeing to understand all of the options that open up to you as you achieve progressively more financial independence compared to the restrictive feeling that is common with traditional views of retirement.

  10. ColoradoFIRE says:

    I wish that more companies were willing to allow employees to semi- or pre-retire. My husband and I, in our late 40s/early 50s, realized last year that we didn’t have to work full-time anymore. Despite having been at his company for 6 years and consistently doing extremely well, when my husband asked to cut back to 30 hours per week (and provided a plan for remaining productive in the new schedule), the company said no. It was painless for him to walk away, and he did, but we were shaking our heads. The company was having trouble finding needed employees at the time, but still chose to lose a great employee for 40 hours a week, instead of for the 10 hours he proposed. They clearly didn’t want to set a precedent of allowing part-time workers.

    • Chris Mamula says:

      Every situation is different, but that seems to be more of an exception than a rule from feedback I receive from readers as well as personal experiences my wife and I have each had.

      Curious, is he looking for a different working arrangement elsewhere or does he plan to now fully retire?

  11. Health insurance being tied to ones employer is one of (if not the) biggest gating factor for most in the US trying to retire before 65. This could also be why the ‘pretirement’ term is more popular among the Brits (and anyone else who has access to a sponsored health care plan either from the govt or prior employment).

    This concept of employer provided health insurance is long since outdated and needs to change. While national govt mandated insurance is not popular among some due to how the politicians structured and present it, that is not the only option. All states in the US have insurance commissioners who regulate and monitor the entire industry within their state. Just like states manage portions of Medicaid they could do something similar with health insurance. Let state managed health insurance become a way that states compete for industry and investment as they have for decades with tax rebates and incentives. The states already provide insurance for all of their employees, increasing the size of the pool should, in theory provide better rates. Like everything with govt, it comes down to the money and where it comes from, but the math is straight forward if only the two major parties would get their rears off their shoulders and work together for the benefit of those they actually represent (*and who elect them and pay their salary) and not the party designation after their name.

    • Chris Mamula says:

      Tim O,

      Our system is complicated and frustrating. That was the driving factor for me to want to retire early as a physical therapist. So agree it is double painful as a medical professional who wants to retire early because system is so bad, but then feeling trapped by that same broken system because it is so hard to develop a plan to obtain insurance reliably and affordably.

      Fixing the system will require major changes beyond how we pay for it. I don’t see anyone on either side of the aisle with the stomach to do what it takes. Here is an interesting take on the topic from White Coat Investor that I largely agree with if interested: https://www.whitecoatinvestor.com/health-care-reform/

      Chris

  12. Ive now entered preretirement. I’m 53 yrs and live in UK. It’s great. I just do about 15 hrs of work a week. We have a NHS so ok in that area. I agree with all the points made in the article. Work is good for you but too much work isn’t. It does help soften sequence of return risk as if needed I’ll will take less percentage from portfolio. At the moment my earned income is enough. Hardly any tax to pay. I’ve just basically stopped saving heavily. So only need my expenses to cover my lifestyle. It’s the way to go. As said so many uncertainties lie ahead.

    • Chris Mamula says:

      Thanks for sharing Dawn. This is very consistent with what we’re doing, with the exception of having to deal with health care in the US. We’re doing that by having my wife work enough to obtain coverage for our family. For now, agree with your assessment that it provides a great lifestyle balance, very low taxes and little financial risk. For someone without her desirable work situation, health care is a the biggest barrier to this lifestyle in the US right now.

      Best,
      Chris