We are an aging population, yet even as more of us grow older, we have become more active and are embracing the future with a passion rarely seen in previous generations. At the turn of the 20th century, the average life expectancy was 47 years. Today, the average American will live approximately 79 years. The trend is expected to continue, and by 2040, among individuals who reach age 65, average life expectancy is projected to rise from 81 to 85 for men and from 84 to 88 for women, according to the National Center for Health Statistics.
Simultaneously, as we are enjoying medical advances and living healthier lifestyles that are contributing to these longer life spans, the largest portion of our population is nearing retirement. Between 2000 and 2011, the percentage of Americans over 65 years of age grew 18% and the ranks of the Medicare-eligible community of seniors of 'retirement age' has grown to over 41 million, with much of that growth happening in the few years since the first baby boomers turned 65 in 2011. A recent Administration on Aging report, cited by news venues like the U.S. News and World Report, shows the trend will continue as more baby boomers reach retirement age.
This generation of baby boomers will help redefine how our society thinks of its retirement years. The aging of America and these demographic changes are causing an 'age wave', which will transform every aspect of our personal, social, financial and political lives, according to Dr. Ken Dychtwald, psychologist and gerontologist. But we should not expect people to enter into a 30-year retirement in the traditional sense of the word. According to Dychtwald, longer, healthier lives means new definitions of the life cycles. No longer are people expected to first go through their education, then work and then retire. Now, the opportunities to continue working or to go back to school do not end with retirement, as they usually did in the past. The old, linear life model is being replaced with a cyclical approach including short-term retirements, followed by any combination of career shifts, part-time or flex-time work, entrepreneurial endeavors and continuing education. In fact, about 18% of people over 65 are currently in the labor force, according to a 2014 Bureau of Labor Statistics report.
These statistics support the belief that as boomers pass through their middle years and maturity, some key factors are reshaping how they live:
Furthermore, one of the greatest challenges that baby boomers will face as they turn the corner into their retirement years is stretching their finances to accommodate their longer lifespans. New reports from Forbes Magazine and other sources show that the number of American seniors nearing retirement with less than $30,000 in their pockets may be as high as a staggering 75%, leading to major concerns about a retirement crisis in coming years.
What can boomers do in their 40's and 50's to best prepare financially for this new definition of retirement and the numerous lifestyle changes that lie ahead? Following are three simple rules:
Now is the perfect time for people nearing retirement (and those who want to get started early) to visit with a qualified financial advisor. An advisor can help with potential solutions to the issues many boomers will face. For example, long term care insurance can help cover the high cost of nursing home care and retirement plan catch-up contributions can boost savings for those age 50 and older. Retirement is being redefined, and the time is now for investors to redefine their plans for paying for retirement as well.
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