The Landscape of Retirement is Shifting
Paul Fain, CFP®
Life expectancy continues to rise, yet the COVID-19 pandemic accelerated many early retirements. The median retirement age is 62, but it is projected that two-thirds of people born today will live past age 80.
Are we ready for a long retirement? The mind says “Yes!” but the wallet says “No!” In the American College of Financial Services’ 2023 “Retirement Income Literacy Study,” consumers demonstrated a lack of retirement knowledge, averaging only a 31% score on a retirement literacy quiz.
“Americans need to ensure they will have enough money to last throughout their lifetimes. The much-discussed baby boomer wave will crest in 2024, with 12,000 retiring every day. With the ‘Graying of America’ and the median age of Americans going up, it is more important than ever to plan for longer, well-lived lives, considering long-term care needs and replacing more of their pre-retirement income,” says the study.
Consumers need to know how much to save for retirement, where to invest it and how much they can afford to spend at retirement. In retirement, spending more than your available income sources can lead to debt and running out of money. For a retiree, that should be scarier than a stock market crash. So make sure you can live on a sustainable budget before you retire (in other words, test drive it). Know your needs. Prioritize your wishes.
On the quantitative side, run the numbers using retirement apps or software or a financial planner. Run multiple scenarios with varying spending levels, inflation rates, investment returns, mortality ages, Social Security claiming strategies, etc.
On the qualitative side, consider a flexible approach to retirement versus a hard stop. I think we will see more people leaving their career jobs to downshift into meaningful part-time positions. Plan how you will spend your time. Pursue learning opportunities and interests that give you a sense of purpose and fulfillment: hiking, tai chi, travel. Stay connected: join a social group, volunteer organization or book club. Compete in the Senior Olympics. Experiment with various activities, preferably before you retire.
Get in the right headspace. Expect the unexpected. You just never know what could change – a health crisis, the needs of elderly parents or adult children, etc. Anxious or worried about money? Do something about it. Treat your portfolio like another part-time job; monitor and adjust diversified and resilient investment strategies.
“Developing personalized plans that take into account individual goals, projected lifespan and specific health care requirements within the constantly evolving and intricate landscape of retirement is essential for ensuring a secure financial future,” according to Kaylee Ranck, Ph.D., a director at The American College of Financial Services.
The bottom line: Balance enjoying today and protecting the future.
This article originally appeared in the Knoxville News Sentinel online on March 22, 2024.
