Retirement

Retirement is the point where a person stops employment. A person may also semi-retire and keep some sort of job, although usually out of choice rather than necessity. This usually happens upon reaching a determined age, when physical conditions don't allow the person to work any more (by illness or accident), or even for personal choice (usually in the presence of an adequate pension or personal savings). The retirement with a pension is considered a right of the worker in many societies, and hard ideological, social, cultural and political battles have been fought over whether this is a right or not. In many western countries this right is mentioned in national constitutions.

Retirement is also sports jargon for the situation where a team decides never again to issue the jersey number of a retiring player, as a token of honor.

Retirement age

In most countries, the idea of a fixed retirement age is of recent origin, being introduced during the 19th and 20th centuries - before then, the absence of pension arrangements meant that most workers continued to work until death, or relied on personal savings or the support of family or friends. Nowadays most developed nations have systems to provide pensions on retirement in old age, which may be sponsored by employers or the state. In many poorer countries, support for the old is still mainly provided through the family.

The retirement age varies from country to country but it is generally between 55 and 70. In some countries this age is different for male and females. Sometimes certain jobs, the most dangerous or fatiguing ones in particular, have an earlier retirement age.

In the United States, while most view 65 as normal retirement age, many retire before then, sometimes with contributory causes such as job-loss, disability or wealth. However, the Old Age Survivors Insurance or OASI, better known as the Social Security system has age 62 as the earliest retirement age and 70 as the oldest. Normal retirement age for those turning 65 in the year 2006 was 65 years and 8 months because year 1941 was their year of birth. [1]

Retirement age for teachers in France is thirty years after employment and age 50 for train engineers [2] on the SNCF, the national railway. Policeman in the United States are typically allowed to retire at half pay after only 20 years of service or three-quarter pay after 30 years, allowing people in their early forties or fifties to retire.

Many scientists, lawyers, TV anchormen, and professors still work well into their 70s, however many actors, models, athletes, and musicians only work until their 30s.

Military members of the US Armed Forces may elect to retire after 20 years of active duty. Their retirement pay (not a pension since they can be involuntarily called back to active duty at any time) is calculated on total number of years on active duty, their final pay grade and the retirement system in place when they entered service. Allowances such as housing and subsistence are not used to calculate a member's retired pay. Members awarded the Medal of Honor qualify for a separate stipend, regardless of the years of service. There is a federally mandated cap of 75% of their final base pay in all cases. Military members in the reserve and US National Guard have their retirement based on a point system.

Support and funds

Retired workers then support themselves either through superannuation, pensions, or savings. In most cases the money is provided by the government, but sometimes granted only by private subscriptions to mutual funds. In this latter case, subscriptions might be compulsory or voluntary. In some countries an additional "bonus" is granted una tantum (once only) in proportion to the years of work and the average wages; this is usually provided by the employer.

The financial weight of provision of pensions on a government's budget is often heavy and is the reason for political debates about the retirement age. The state might be interested in a later retirement age for economic reasons.

The cost of health care in retirement is large, because people tend to be ill more frequently in later life. Increasing numbers of older people, combined with an increase in the cost of healthcare, has led to the funding of post-retirement health care becoming a political issue. There is then pressure to reform healthcare systems to contain costs, or find new sources of funding.

Early retirement

Early retirement can be at any age, but is generally before the age (or tenure) needed for eligibility for support and funds from government or employer-provided sources. Thus, early-retirees rely on their own savings and investments to be initially self-supporting, until they start receiving such external support.

Savings needed for early retirement

While conventional wisdom has it that one can retire and take 7% or more out of a portfolio year after year, this would not have worked very often in the past.[3] [4] When making periodic inflation-adjusted withdrawals from retirement savings, volatility can make meaningless many assumptions that are based on long term average investment returns.

File:73-75.gif

The chart at the right shows the year-to-year portfolio balances after taking $35,000 (and adjusting for inflation) from a $750,000 portfolio every year for 30 years, starting in 1973 (red line), 1974 (blue line), or 1975 (green line).[5] While the overall market conditions and inflation affected all three about the same (since all three experienced the exact same conditions between 1975 and 2003), the chance of making the funds last for 30 years depended heavily on what happened to the stock market in the first few years.

Those contemplating early retirement will want to know if they have enough to survive possible bear markets such as the one that sent the 1973 retiree back to work after 20 years.

The history of the US stock market shows that one would need to live on about 4% of the initial portfolio per year to insure that the portfolio is not depleted before the end of the retirement. [6] This allowed for increasing the withdrawals with inflation to maintain a consistent spending ability throughout the retirement, and to continue making withdrawals even in dramatic and prolonged bear markets.[7] (The 4% figure does not assume any pension or change in spending levels throughout the retirement.)

Calculations using actual numbers

Although the 4% initial portfolio withdrawal rate described above can be used as a rough gauge, it is often desirable to use a retirement planning tool that accepts detailed input and can render a result that has more precision. Some of these tools model only the retirement phase of the plan while others can model both the savings or accumulation phase as well as the retirement phase of the plan.

The effects of making inflation-adjusted withdrawals from a given starting portfolio can be modeled with a downloadable spreadsheet that uses historical stock market data to estimate likely portfolio returns. Another approach is to employ an online retirement calculator that also uses historical stock market modeling, but adds provisions for incorporating pensions, other retirement income, and changes in spending that may occur during the course of the retirement.

Finally, a newer method for determining the adequacy of a retirement plan is Monte Carlo Simulation. An Online Monte Carlo retirement calculator allows you to enter savings, income, and expense information and simulate your retirement by running through thousands of simulations of your retirement.

Life after retirement

Retirement might coincide with important life changes; a retired worker might move to a new location, for example a specialised retirement village, thereby having less frequent contact with their previous social context.

In some countries, retired workers will continue to participate in the life of their family and their society, often following ancient ethnic roles. Some countries are sponsoring initiatives to help retired workers keep contributing to social and cultural life.

File:Retirement home.jpg

Outside a retirement home

Many people in the later years of their lives, due to failing health, require assistance, the highest degree of assistance - in some countries - being provided in a nursing home. Those who need care, but are not in need of constant assistance, may choose to live in a retirement home. This is a facility giving the retired person some degree of freedom, yet with close-by medical assistance to handle emergencies.

Retirement ceases if the retiree decides to go back to work. A retiree may go back to work for a number of reasons, ranging from financial hardship, to the simple desire for activity or new social interactions.

Old-age pensions are usually not reduced because of other income, so the latter comes on top of the former. This may be different in the case of a disability pension.

See also

• Pension
• AARP

External links

• The world's largest study into global ageing and retirement
• The New Meaning of Retirement
• Post-retirement Career & Volunteering
• "Historical Development" Social Security Administration
• Economic History of Retirement in the U.S. from EH.NET's Encyclopedia
• Switzerland's senior citizens sharing tales of life in Geneva

• Retirement Planning Calculator on MSN Money
• Retirement Income Navigator From Trusts and Estates Magazine

Articles

• "The Unretired" - HONOLULU Magazine ~ November 2006