Retirement has changed faster than most Americans realize.
Your retirement will look very different from your parents’ and grandparents’ retirement. Defined benefit plans like pensions have been shrinking for decades, giving way to defined contribution plans like 401(k)s.
These, in turn, have disappeared for today’s gig economy workers, of whom there are roughly 60 million in the U.S., per CNBC. And this number is growing three times faster than the size of the workforce at large.
You also can’t count on Social Security to cover the bulk of your retirement income. A study by the Senior Citizens League found that real Social Security benefits (measured by purchasing power) shrank by 30% between 2000 and 2017.
In other words, Americans are increasingly on their own for planning their retirement. And most are woefully unprepared for the challenge.
Unorthodox Retirement Tips
But it’s not all doom and gloom. You don’t necessarily need to save millions of dollars to have a comfortable retirement, especially if you’re willing to think unconventionally.
Here are 11 ideas to approach your retirement planning more creatively and ensure you have the income you need in your golden years.
1. Start With a Holistic Income Plan
You know Social Security won’t cover your entire retirement income, even if you maximize your benefits. But it will provide something. Currently, the average monthly Social Security benefit is $1,471 — a good start toward your monthly living expenses in retirement.
Imagine you want to spend $4,000 per month in retirement. You run the numbers and decide you can count on $1,500 from Social Security, leaving $2,500 in additional monthly income to go. Your mission is to cobble the remainder together from a healthy mix of passive income sources.
If you have a nest egg of $600,000 saved and you follow the 4% rule as a safe withdrawal rate, that provides another $2,000 per month. You need another $500 per month to meet your target.
It could come from a reverse mortgage if you have equity in your home. Or it could come from buying a rental property through a company like Roofstock, investing in private notes, working part-time in retirement, or bringing in a college student as a housemate.
No single source of income will carry you through several decades of retirement. But by thinking holistically about your retirement income and creating multiple streams of it, you can simultaneously diversify your income and find creative ways to fill the gaps.
2. Plan for More Than 30 Years of Retirement
In one longevity study, researchers found that with a few simple behavioral changes, respondents statistically lived 10 to 14 years longer. These behaviors put average life expectancies at 93.1 for women and 87.6 for men. The key word is “average” — many people will live even longer.
Which raises an important question: How do you pay for such a long life?
As health care improves and life expectancies continue to extend further into the future, Americans need to change the math of their retirement income. The 4% rule was designed for retirement nest eggs to last 30 years, but that’s not long enough for many Americans.
One answer is to reduce your withdrawal rate to 3.5%. Based on historical market performance, that should leave your nest egg intact forever, according to analyses by financial planner Michael Kitces.
But saving more money and withdrawing less of it each year isn’t the only answer. Alternatively, you can invest in assets that generate ongoing passive income, spend less money, or even take on a fun, laid-back post-retirement career to redefine retirement on your own terms.
3. Work Post-Retirement
In the 20th century, people worked their full-time, high-stress jobs into their 60s, then retired with a cake-filled office party, and that was that. But that’s an outdated model for retirement.
With people living longer, it makes more sense for each of us to more gradually transition into retirement in our own ways, at our own speeds. Sure, having a high-octane career is fun in your younger and middle years, but as you get older, do you really want to work 12-hour days? Do you need all the symbols of power like a corner office and dozens of direct reports?
Start brainstorming ideas of fun semi- or post-retirement jobs you’d enjoy as you get older. I personally plan to pour wine at a winery and continue writing long after I’ve passed the torch at my online business.
Embrace the lower paycheck, lower stress, higher fun, and fulfillment as all part of the package. The goal isn’t to make as much money as possible as fast as possible — it’s to do something you love as you keep earning money well into your retirement years.
Besides, you may not have as much choice in the matter as you think. In a worrying trend, older employees increasingly find themselves pushed out of their positions in their 50s and 60s, long before they were planning to retire.
4. Consider Real Estate as an Alternative to Bonds
Gone are the days of 10% government bond yields in the U.S.
Yet the need to reduce risk in your portfolio remains as you near retirement and stare into the face of sequence of returns risk. You need ongoing, stable income in retirement, and while bonds provide it, they’re awfully stingy in the modern era.
Enter: real estate investments.
You could buy rental properties, which can offer great returns, inflation-adjusted cash flow, and excellent real estate tax benefits. But that also means taking on some of the issues with being a landlord.
Alternatively, you can choose from a range of options to invest in real estate indirectly. You never have to take title to a single property, yet you can invest in real estate and gain many of the same benefits.
One option many older investors ignore is real estate crowdfunding websites. While they originally accepted funds only from accredited investors, many increasingly allow ordinary investors to participate.
Consider websites like Fundrise and GroundFloor. They offer two very different crowdfunding models, but both allow nonaccredited investors to get started with little money.
5. House Hack When It Comes Time to Downsize
No one says your home can’t itself become an income-generating real estate investment.
Conventional wisdom suggests that empty-nesters should downsize to a smaller, cheaper, lower-maintenance home as early as possible to help them save and prepare for retirement. It makes sense, even if many middle-aged Americans resist that advice. But it’s not the only option.
My friend Deni took a more creative approach. She and her husband were feeling financially pinched as they tried to catch up on retirement savings after their kids moved out of the house. But they didn’t want to leave their large suburban house just yet. So they brought in a foreign exchange student to fill the empty space. The placement company paid a stipend that covered over half of their mortgage payment.
After a few years with their new Chinese “son” Alex, they reached a point where they were ready to move. They went in on a multifamily property with their daughter, with two residential units and one commercial unit.
Alex moved with them, their daughter moved in next door and splits the mortgage with them, and they write off the commercial unit entirely and use it as the headquarters for their respective businesses. Today, they don’t spend a penny on housing. In fact, they actually earn money from it.
Anyone can do likewise, creating free housing for themselves through a range of clever ways to use your home to generate income. Start with these house hacking ideas to get your creative juices flowing.
6. Get Rid of Your Car Sooner, Not Later
It’s a conversation adult children dread having with their aging parents: “Mom, I really don’t think you should drive anymore.” It’s usually followed by anger, tears, damaged relationships, and loss of independence and mobility.
But instead of aiming to drive for as long as possible, what if you aimed to ditch your car as early as possible?
For four years, my wife and I shared one car. A few months, ago we got rid of it entirely. We now walk, bike, Uber, and take public transportation everywhere. We save thousands of dollars every year, which goes straight into our retirement savings.
Transportation is the second-highest expense for most households. According to AAA, the average car costs nearly $9,300 per year when you add up expenses like insurance, gas, maintenance, and parking. And many U.S. households own several cars.
My wife and I intentionally designed our life to avoid needing a car. We chose a city, neighborhood, and jobs where we could walk and bike everywhere we needed to go. It saves us money, keeps us fit, and will allow us to age in place if we like, with no need to ever drive again.
Start thinking with that level of long-term lifestyle design as you plan for the remaining decades of your own life.
7. Retire Abroad, Even If Temporarily
America is expensive. But in many parts of the world, including parts of Europe, you can retire and live a relatively luxurious lifestyle on $2,000 per month.
You may not be familiar with the term “geoarbitrage,” but it’s a useful concept here. It simply means taking advantage of a strong home currency to live a richer life in a country with a lower cost of living.
As an expat myself, I’ve had gourmet five-course meals for $20 per person and stayed in upscale hotels for $30 per night through a combination of weak local currencies and low cost of living.
Despite many Americans’ assumptions, many of these countries offer excellent health care as well. For example, in Cuenca, Ecuador, retirees can enjoy a huge American expat population, perfect weather year-round, low cost of living, and an affordable health care model with deep ties to some of the best U.S. hospitals.
Move abroad with friends, as a couple, or as a solo retiree on an adventure. Stay for a year, five years, or forever. Your kids can come to visit, and you can move back to the U.S. whenever you want.
In the meantime, you spend far less than you would in the U.S., all for a more luxurious quality of life with a maid, meals out, and often great medical care.
8. Create Your Own Long-Term Care “Insurance”
One of the great unknowns in retirement is the degree of care you’ll need late in life and how long you’ll need it. As healthy as you are when you retire, your needs will almost certainly change after 20 to 30 years.
One option is long-term care insurance, which is shockingly expensive and may not provide the quality of care you want.
My parents took another route: They saved more for retirement. Instead of spending an arm and a leg on a long-term care insurance policy, they funneled all the money they would be spending on it toward their nest egg.
As a result, they’re retiring with more money than they think they need or they plan to spend. But if something happens and they need to move into an assisted living facility, they have the money for it.
If they never spend it, the money stays in the family and passes to their heirs. That wouldn’t happen if they put that money toward long-term care insurance. It would simply fatten the insurance company’s bottom line.
This strategy also helps your nest egg continue to compound longer and helps you reduce sequence of returns risk by lowering your withdrawal rate.
In the first decade or so of retirement, when my parents are likely to be healthy, they’ll withdraw a relatively lower percentage of their nest egg to live on, leaving more of it intact to keep growing and compounding.
It’s only in the last years of their lives that the likelihood of needing that extra money rises. And at which time, their nest egg should be larger than when they first retired.
9. Plan for Several Stages of Care
Everyone ages differently, requiring different levels of care as they age. But because it’s unpleasant to think about, far too many people ignore planning for their late-in-life care.
In addition to self-insuring against long-term care, plan out a series of stages for care at different levels. The first level often involves getting a little help as you age in place. For instance, someone might come in once or twice a week to help with cleaning, cooking, and anything else you want.
The second level might involve someone coming more often, or it might involve moving in with your grown children. You don’t have to move under the same roof with them. You could instead go in with them on building or buying a “granny flat” or accessory dwelling unit.
You could even structure it as a partnership: You pay for the improvements, which boosts the value of their home. After you pass away, they can rent it out as an income suite rather than an in-law suite. You effectively set them up for their own house hacking.
Consider a nursing home or assisted living facility as a last resort. They’re expensive, and they’re often an unhappy place to spend your last years. But the day may come when you simply require more care than your caregivers or children can provide and need the full-time assistance of a nursing home.
By planning for these stages in advance, you can reduce costs and stress and only progress to the next stage when absolutely necessary.
10. Harvest Losses Even in Retirement
One common end-of-year tax move involves harvesting losses, or offsetting your gains by selling off losing investments. It reduces your capital gains tax and, just as importantly, allows you to reinvest the money from those losing investments into better ones.
Far too many retirees stop paying attention to actively slimming their tax bills. But taxes don’t just affect the working, and retirees still pay taxes on all income other than Roth IRA or Roth 401(k) distributions.
Don’t be afraid to sell losing stocks in your retirement. And once you sell them, don’t be afraid to reinvest them in more promising investments, whether that’s stocks, bonds, real estate, or something else entirely.
If you’re new to the idea of harvesting losses, make sure you talk to your financial advisor to plan the most effective path forward for reducing your tax bill and ditching losing investments in favor of better ones moving forward.
11. Consider Roth Conversions to Reduce Taxes in Retirement
Contributions to your traditional IRA or 401(k) are tax-free in the year you contribute them, but you pay taxes on contributions and the earnings on them later when you retire.
By contrast, you pay income taxes on your contributions to a Roth IRA now, but both the contributions and the earnings are tax-free when you withdraw them in retirement.
Tax-free Roth distributions can keep you in a lower tax bracket in retirement.
For example, if you’re single and your Social Security and real estate income amount to $38,000, most of that is taxed at the 12% tax rate. But if you withdraw another $20,000 per year from your traditional IRA, most of it is taxed at the 22% tax rate. If it’s in a Roth account, you pay 0% taxes on it.
If you’ve already contributed money to a traditional IRA or 401(k), you can move it to a Roth account at any time to reduce taxes in retirement. It’s called a Roth conversion, and it’s a simple process.
Keep in mind that the money you move to a Roth account is taxable in the year you transfer it. Because it raises your taxable income for that year, you want to be careful not to move too much money at once.
You can gradually move the money over to your Roth account over the course of many years or move it in years when you earn a lower taxable income. That way, the extra taxable income never pushes you into a higher tax bracket.
Pro tip: If you’re saving for retirement using an IRA, 401(k), or another retirement plan, make sure you sign up for a free portfolio analysis from Blooom. Once you connect your accounts, they check to make sure you’re properly diversified and have the correct asset allocation. They’ll also check to see if you’re paying more than you should in fees. Read our Blooom review.
Final Word
There’s no one-size-fits-all option in retirement planning. More than ever, you need to form a plan that works for you personally.
When in doubt, don’t be afraid to spend some time speaking with a financial advisor. You don’t need to hire one to permanently manage your money. Many advisors allow you to pay by the hour for personalized advice.
Remember, your income in retirement can and should come from many sources. Think holistically about building multiple streams of income for retirement beyond simply saving a nest egg and then gradually spending it down.
Don’t be afraid to get creative, both in reducing your spending and boosting your income. No retirement “rule” is written in stone, and you can bend the rules to meet your needs if you plan well and aren’t afraid to walk your own path.
