The new retirement: Your grandparents wouldn’t recognize it
Retirement today looks a lot different than it did in your grandparents’ day, when retirees spent their days playing endless rounds of golf, traveling in an RV, or just settling for sedate days of gardening and television watching. Many of today’s retirees aren’t settling for anything, unless you consider “unretirement,” “rewirement,” and second-act careers settling. For them retirement means trying new activities and going after long-postponed dreams.
Research from CareerBuilder shows that one out of every six workers over 60 expects to pursue a dream job or work on a project he or she is passionate about rather than embark on a traditional retirement. Since 54 percent of private sector employers hired workers over 50 in 2014, that dream job may be easier to land than it would have been in the past when the over-fifty hiring rate was only 48 percent. This change in hiring practices comes not a moment too soon for the 78 percent of respondents who cited household financial situations as the number one reason for postponing retirement.
The move toward the redefined retirement is a massive change in the way people view the “golden years,” and it may change the way you plan for a financially secure retirement so you don’t become part of the unfortunate 12 percent who would like to retire but don’t believe they will ever be able to because of lack of adequate savings. Sadly, many people have no idea how to plan for a secure financial future.
As you plan for retirement, you may want to start with these three questions.1. How long will you live?
Nobody really knows the answer to this question, but there are ways to estimate your life expectancy. There are numerous sources of life expectancy tables, including this one from the U.S. Centers for Disease Control (CDC). But tables aren’t real life, so you’ll need to factor in family history, your current health and lifestyle habits and a healthy dose of optimism to be sure you’re covered.2. What return will your investments provide?
It isn’t possible to predict how the financial markets will perform in the future. If we could, nobody would have to worry about saving for retirement — we’d all retire rich. But in the real world, we have to make assumptions and manage risk. Your retirement assets may have a balance of liquid assets, conservative choices such as bonds or money market funds, and a healthy dose of stocks and mutual funds to ensure your nest egg keeps pace with inflation. Even if you enjoy managing your investments and believe you’re a whiz at predicting the market, it’s best to work with a professional who can help you find the level of risk you’re comfortable with.3. How much will you need to live on for the rest of your life?
Many rules of thumb exist for calculating this number, and it’s a sure bet that not one of those rules applies exactly to your unique situation. How much you’ll need depends on your level of debt moving into retirement as well as your plan for how you’ll spend your time. Estimates that assume you will need less than your current income may be pretty far off if you plan to travel or take up expensive new hobbies. If you plan to work for some time after you retire, those rules of thumb may overestimate your needs.
In addition to researching your own plans, you may want to talk with a professional who can recommend the right mix of investments to support your income needs once you know what your plan is. Or working with an advisor may help you confirm your existing plans and execute them.
Don’t forget, by the way, that health care spending rises dramatically in the last five years of life. Mean out-of-pocket health care expenses run about $4,400 a year for people over 85, according to a study published by the U.S. government National Institute on Aging.
In the coming weeks we’ll look more at new ways of retiring and other changes in the retirement landscape to help you align your wealth management activities with your retirement priorities.