Redefining Retirement

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:

1. Concern about the onset of chronic disease and the desire to do whatever is possible to postpone physical aging.
2. Entry into new adult life stages including empty-nesting, care-giving, widowhood and retirement, each with its own challenges and opportunities.
3. A psychological shift from acquiring more material possessions toward a desire to pursue enjoyable and satisfying experiences.

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:

1. Create or update your financial plan - Seek the help of a qualified financial advisor to create a roadmap for your future. If you have a plan, be sure to update it and adjust it frequently to assure you remain on track with changing plans and goals. Websites that offer a variety of planning resources include www.aarp.com, www.getadvice.com and many others.
2. Save, save, save - Even if it's late in the game, take control and get started now. Less than 50 percent of working Americans have a pension plan at their workplace, according to AARP. That means less than half of all private sector workers have a regular payroll deduction mechanism to save for their future.
3. Don't ignore the rising costs of healthcare - For many, healthcare costs are increasing by double digits annually, and insurers are reducing offerings, raising prices and shifting costs. In addition, many employers are cutting back on employee health benefits and retiree health benefits. The emergence of the Affordable Care Act and its recent implementation offers seniors some better price models, but healthcare costs are still a main expense for the average retiree, and are often problematic to plan for.

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.