When it comes to preparing for retirement, the old rules about money have been thrown out. Therefore, adults of all ages need a new framework to guide and motivate their preparation for long-term financial independence.
In the past, the goal of traditional retirement planning has been to build a retirement “nest egg” of personal savings and investments to supplement a company pension and Social Security. Together, these three sources of retirement income have long been referred to as the proverbial “three legged stool”—a solid, well balanced foundation for financial security in old age.
However, new financial realities are causing us to look for new retirement planning models. The concept of the three-legged retirement income stool is outdated and inadequate. Social Security benefits are less generous than they once were and the solvency of future benefits is in question. Employers are also reducing pension benefits and/or switching to plans where they are no longer responsible for investment performance or a guaranteed benefit amount. In addition, increasing longevity and rising health care costs will dramatically increase retirement income needs.
Therefore, the old retirement income stool has gotten very wobbly! Two legs are shorter and more “weight” (responsibility) has shifted to the third leg of personal savings and investments. And, this leg is coming up short as well!
What is emerging is a new retirement income model—one that includes a transitional period from full-time employment to full-time retirement. Using this framework, many of your clients will either be (1) older at full retirement, (2) have part-time or part-year jobs, (3) move into second careers, or (4) gradually phase out of their current positions rather than make an abrupt departure. With any of these four transitional scenarios, income and benefits from post-retirement work will become a fourth leg on the traditionally three-legged retirement income stool.
In addition, post-retirement work provides benefits that most adults find liberating and compelling. That is because they view retirement not as a respite from work, but as an opportunity to explore new arenas, stretch their comfort zones, and find unique ways to contribute to their families and communities.
What Is “Retirement”? is a 2019 study conducted by the Transamerica Center for Retirement Studies. It explores the meaning of retirement and examines the attitudes and behaviors of three generations currently represented in the workforce:
Baby Boomer: Born 1946–1964
Generation X: Born 1965–1978
Millennial: Born 1979– 2000
Results indicated that—across generations—workers are looking forward to an active phase in life that includes continued work and time for leisure activities such as travel, spending more time with family and friends, pursuing hobbies, and volunteer work. In addition, most envision a flexible transition into retirement that differs from prior generations when retirement was marked by an abrupt stop to work. Among the respondents who reported they are currently working or plan to work past age 65, 80 percent cited financial reasons and 72 percent cited healthy aging reasons.
However, the researchers also found that workers of all ages need to do more in order to fulfill their aspirations and expectations of working past age 65. In fact, 27 percent reported that they had not taken any steps to ensure their long-term ability to work. Among those who are being proactive, their most frequent responses included staying healthy (48 percent), performing well at their current job (43 percent) and keeping their skills up to date (40 percent).
Several years ago, Bob Veres extolled the benefits of post-retirement work in his article “The Value of Planning.” He wrote that many advisors recognize that retirement is a “huge dangerous transition, and that all-too-many people will unknowingly retire to lives of emptiness and meaninglessness.”
Therefore, instead of helping their clients to retire, these enlightened advisors help them “transition from a job they dislike to meaningful work that they can do and enjoy as if it were play.” Bob further explained:
Helping people move from work they dislike to work that is fulfilling and empowering is enormously valuable, and the bonus is that they can continue to do what they enjoy and escape the meaninglessness and emptiness of a retirement that puts them on the sidelines. They can cut back and still remain relevant. Can you put a value on this? Let’s agree that it’s probably greater than your current fees would reflect.
- Carol Anderson