The Retirement Bubble

When I talk to retirees and would-be retirees about the Life Sabbatical, I often suggest that they set 30% of their last salary or other earned income as the maximum they expect from their new field. It is perfectly understandable that they ask me, why 30%? I would ask the same thing in their position.

The first step is to understand that I only suggest this to people who think they have sufficient financial resources to retire. If they don’t think they have enough, then I obviously encourage them to continue working until they do. But once they have reached that stage and believe that they need to have some earned income if they are truly to be independent and secure in the future, I move on to the Life Sabbatical concept and that is when the “30% Solution” is mentioned. I tell them to set an earned income goal no higher than 30% of their last salary.

There is nothing magical about the 30%. Too many retirees I have spoken to who have decided to return to the workforce set high goals for salary. It is not uncommon, for example, that someone who was last paid $80,000 a year to tell me that they are hoping to get the same or at least 70K, but they might settle for 65K if the job was really interesting. Others may have had earned income of 50K or 250K or whatever and say the same thing. This is from folks who have been out of the workforce for a few years. Frankly, it is almost always completely unrealistic, but it may take months of frustration before they come to realize this. And by the time they do, they feel defeated and a “failure”.

In addition, because they set their goal so high, they almost always look for work in the same field they used to work in, the field they left so joyfully a few years earlier. They feel they have to do that to reach their salary goal.

I tell them to stop and think it through. The key is to find supplemental income that helps them pay bills, remain free from dependency on others, and (above all) do work that really pleases them. That is often doing something different than they have done before. By taking a Life Sabbatical, they are taking the time to check out other activities that really attract them. When they find one, they can begin the process of learning, just like everyone else. Due to their lifetime of experience, they can pick up a new activity faster than someone who has never been in the workforce.

When they approach a potential employer in their new field, they cannot expect to get the same salary they got before after decades of experience. I recommend that they set 30% as their goal for their new entry position. For the person who earned 80K before, that means $24,000. They must remember that they are looking to supplement their income, not support themselves totally on their new salary.

I have seen this work. Why does it work? The secret has nothing to do with $24,000 or 30% any other number. The secret is to reset our goals to be more realistic and to fit our changed circumstances. But we are creatures of habit and we often have to make a real effort not to do what we have done before.

With a few exceptions, nearly everyone I have talked to gives me a salary number when I ask them what they expect to earn when they go back to work. In other words, they set income goals in their heads. I try to help them justify setting a very low goal from the beginning. It is better to set goals low and exceed them to set them high and fail, but many people have a problem doing that. We can talk forever about why this is the case, but I don’t waste my time on that. I just accept it and work with it. I want folks to succeed and anything that helps them succeed is a good idea. Anything that acts as an unnecessary obstacle is a bad idea.

Why 30%? Hey, what works for you, works for me, so choose another number if you like. But look at this as a new adventure and a new beginning, not just a repeat of the past! Seeking to earn supplemental income when you are older is not a tragedy. It is not evidence of failure. It will be the start of something better than you have ever experienced before. Give yourself a break and set the bar low at first. You can raise it later. You have more time than you think.

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