Will You Be Able To Retire? Do You Want To?

Investing
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By Martin Weil

Learn more about Martin on NerdWallet’s Ask an Advisor

“Put simply, it may not be realistic in the long run to finance thirty years of retirement with forty years of work.” –Axel Merk

Prior to the 20th century, “retirement” generally meant that period of life when you were no longer physically able to perform the duties of a job as an agricultural or manufacturing laborer.  Broken down by the rigors of this arduous physical work, a “retiree” returned home to be supported by family until death.  Median life expectancy for a US male was just 46 years in 1900.

Over the past 100 years or so, developed nation life expectancies have increased dramatically, due to substantial gains in standards of living and public health.  The average US baby born in 2010 will live to 78.  Today’s 60 year-old US male has a median life expectancy of 85, the average US female 88.  For those harboring illusions about their own potential longevity, I recommend this short quiz at Living to 100[1], for a reality check.  The challenge in all of this – What to do with all those extra years?  And how to pay for them?

When I started this business in the 1990’s, the conventional wisdom held that most of us would retire on or about our 65th birthdays.  Like prior generations, we would pack up, move to sunnier climes, and while away our days in happy pursuit of assorted leisure activities.  Of course, my baby-boomer generation has always managed to surprise popular expectation.  Well before the 2008 financial crisis threw a giant monkey wrench into the retirement plans of the majority of Americans, the traditional model was already breaking down.

To those approaching retirement today, that 1950’s vision of a comfortable retirement, supported by Social Security and a generous company pension, must seem unbearably quaint.  Social Security, never intended as more than a stopgap against destitution, will eventually need to be modified, with a later start date for benefits an obvious solution.  The traditional employer pension is all but extinct in the private sector, and imperiled in the public sector.  The one major addition to the retirement ecosystem since the 1960s, Medicare, is in genuine longer-term financial jeopardy.  Is it any wonder that “retirement anxiety” is one of the leading topics on the finance pages of newspapers and websites?

A market response is in the works, as more and more Americans in their early to mid-60s, willingly or not, are delaying retirement and working longer than they might have planned.  The fastest growing age segment of the labor force today, by percentage participation, is the 65-and-over demographic.  At an individual level, this may not be welcome news.  Many are being compelled by financial necessity to continue to work in jobs they would prefer to leave.  Some are unable to find the jobs they need and risk being left with inadequate resources in their later years.

But for some, this changing norm represents something more positive.  In conversations with clients over recent years, it has become clear that quite a few approached the notion of retirement with anxiety.  They did not, or could not, envision 30 years of … what again exactly?  Many self-identify with their careers, a condition that makes the very idea of retirement as much of a threat than an opportunity.  At nearly 65 myself, I believe that I am still fully compos, vital and eager to continue to pursue a career that has been enormously fulfilling.  Many others in their 60s and beyond will find second, or even third, careers or other professional challenges before “settling down” at a later age to more traditional leisurely pursuits[2].

As Americans, we are undergoing a true paradigm shift[3] in retirement.  This transformation has profound demographic, as well as economic, implications that will alter the investment landscape in years ahead.  The challenge for financial planners will be to assist our clients to find their way through this changing landscape, and to pursue avenues that satisfy both their personal and their financial needs.

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[1] I do recommend not giving the site your normal email address as they seem to have little restraint in sending a stream of marketing information for age-related products.

[2] Morningstar has this excellent overview of the Social Security and Medicare issues for those working after age 65.

[3] One of the most overworked phrases ever, but I find it to be an accurate description of the changing retirement landscape.