The most encouraging thing we’ve seen from the financial-planning community in a long time is the concept of “practice retirement.”

The idea comes from the folks at T. Rowe Price, the mutual fund company. The core of the practice-retirement concept is to postpone full retirement. Rather than working until 65 or 67 or whatever and then living off of what you’ve saved, practice retirement involves working longer in life, but doing the fun things you planned for retirement sooner.

T. Rowe Price suggests practice retirement for people who have put aside considerable savings by the time they are 60-years of age. But the beauty of the system, it seems to us, is that it can also be the core of last-minute planning for people without adequate savings.

First, let’s look at how it’s supposed to work:

For example, a couple with $75,000 in joint household income who want to retire at 62 and have 75 percent of their preretirement income would need $975,000 in savings by age 60. But if they’re willing to keep working until age 67, T. Rowe Price estimates they’d need $675,000. Those five extra years on the job cut the amount needed at age 60 by almost one-third.

And if the couple don’t touch their savings until 70, they need to set aside an even lower amount — $525,000.

The difference comes from two factors. First, the longer you can put off full retirement, the longer your savings have to grow. Second, the longer you put off full retirement, the more you’ll eventually collect from Social Security.

Last-minute and practice retirement

So let’s look at how this might work for someone who hasn’t saved.

Imagine that same couple with that same $75,000 in joint income and zero savings at age 55. Let’s call them Mr. and Mrs. Latestart.

If they could commit to putting away $5,000 a year starting right now, it would mean investing just $416.66 a month.

If we assume a 3% return, then in 10 years when the Latestarts turned 65, they’d have $58,370.21.

If they stopped saving right then, but didn’t touch their investments until they were 72 years old, they’d have $71,991.20 in savings.

That’s not what anyone would ever call an adequate amount in retirement savings.

But let’s think about that for a bit.

If the Latestarts are the type of folks with modest retirement dreams, then Practice Retirement winds up making sense.

Were they dreaming of trips to Disney with grandkids? Do they love golf? Hiking? Staying at Bed and Breakfast Inns in Vermont when the leaves turn?

During those last seven years — from age 65 to 72 — the Latestarts aren’t saving any longer. So that $416 a month suddenly becomes their retirement “play” money.
And although $416 a month won’t pay for a trip around the world, it will pay for some weekends at Disney, lots of golf, a good tent, and many a night at a B&B during those seven years.

But the real beauty of practice retirement for folks who have to do last-minute retirement planning is in Social Security.

Remember the Latestarts? They’re 55 years old today, which means they were born in the late 1950s.

For Social Security purposes, that means they have a Normal Retirement Age (the time when the government sort of expects you to stop working) of just shy of 67-years old.

But the longer you postpone collecting Social Security beyond your NRA, the higher your monthly benefit will be. For people like the Latestarts, postponing the Social Security check until they are 70-years old will boost their benefits by 76 percent!.

Without knowing more about the Latestarts, we can’t calculate their exact Social Security benefits. But a quick look at the government’s estimating tool suggests that if they wait to collect until they are 70, they’d have somewhere between $2300 and $2500 coming every month from the Feds.

It’s not much, but it’s probably enough for them to get by.

Plus they still have that roughly $72,000 for emergencies and birthday presents for the grandkids.

Most importantly, they have seven years of memories of “practice retirement” weekends at Disney. Myrtle Beach and New England.

If you think “practice retirement” might be for you, take a look at T. Rowe Price’s tools, and then find out what your Social Security benefits will look like if you work beyond your Normal Retirement Age.

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