Chris Farrell has a hot retirement investing tip for you, but it's not a stock or bond.
Farrell wants you to invest in yourself. In his new book, Unretirement (Bloomsbury Press), he argues that developing skills that can help you earn income well past traditional retirement age offers a better return on investment than any financial instrument—and it can help transform the economy as it continues to heal from the Great Recession.
Farrell is senior economics contributor at public radio's Marketplace, a contributing editor at Bloomberg Businessweek and a columnist for the Minneapolis Star Tribune. In a recent interview, I asked him to describe his vision of unretirement.
Q: How do you define "unretirement"?
"Unretirement" is about the financial impact of working longer. If you can work well into your 60s, even earning just a part-time income through a bridge job or contract work, you'll make so much more in the course of a year than you could from saving.
That changes the financial picture—and not just income. You also don't have to tap your retirement nest egg during those years, and you might be able to add to it. And it allows you to realistically wait to claim Social Security between age 66 and 70, depending on your health and personal circumstances.
Q: What are the essential tools and strategies for people trying to figure out how to unretire? Where should they begin?
The most important thing is to begin by asking yourself what it is you want to be doing—what kind of work. Do informational interviews with people. The real asset that older workers have is their networks—the people who have known them over the years. Talk with them to find out if you need to add new skills.
Don't romanticize any particular idea—research it. Think about how you can take your existing skills and move into a different sector of the economy with those.
Q: One of the biggest obstacles facing older workers is age bias. Are employers adapting to help older people keep working longer?
The only evidence I've seen of that is at companies that face very tight labor markets—typically technology businesses. It's also true for the nursing profession. For the rest of the economy, I've been to conference after conference focused on older workers, where employers wring their hands about all the brain power walking out the door. They're sincere, but when they go back to the office they really aren't motivated to do anything about it because the labor market isn't strong enough
Q: If that's the case, how will unretirement be able to take hold as a trend?
The economy is getting better, and labor markets are tightening. But this also will be driven by grassroots change. Many leading-edge boomers are negotiating their own deals, starting businesses or setting themselves up for self-employment with a portfolio of part-time jobs. It's very do-it-yourself.
And attitudes are changing—there will be enormous pressure from society as people push for this. They're going to be saying, "We're pretty well educated, and healthier than we were before, and the numbers don't work for us to go down to Florida or Arizona and retire—and we actually don't want to do that."
Q: There's a great debate under way over whether we are headed for a crisis in retirement security or not. What's your view?
I don't think there will be a retirement crisis if we continue to work longer. But we're going to want to do it with jobs that provide meaning rather than those that make people just miserable enough that they have to continue to work.
One thing that upsets me is that we have a conflation of financial stresses facing the middle class and pretending that the middle class will be in poverty in retirement—and that's just not true. There is a group that is really vulnerable—they've worked all their lives for companies that don't provide retirement or health insurance benefits. That is the really vulnerable group.
I think two-thirds of our society will be fine, but for this other group, it's not about investing in a 401(k), because they simply don't have the money. For them, Social Security will be the entire retirement plan.
Q: That suggests we will need to beef up Social Security, at least for the lowest-income retirees.
Absolutely. If a majority of us are healthy and continue to work and pay into the Social Security system, we will become a wealthier society—and we will be able to afford to be more generous with Social Security.