Today's Retirement Journey
Forget those stereotypes. Stay active, stay involved, and prepare for what may be your best years yet
In another age, so long ago that IRA s and 401(k) plans hadn't yet been invented, a powerful, aging king named Lear decided to retire. He elected to divide his vast English kingdom among his three beloved daughters, who would take care of him in his old age. Talk about miscalculations. Two of the daughters turned on their father, while a third shipped off to France without her share of the fortune. Eventually, Lear was driven mad by the family feuding.
There's a lesson here for all of us, and especially for the 76 million baby boomers who will celebrate their 65th birthday over the next two decades. Despite their boundless goals and intensity, many of them will have problems, if perhaps less epic than Lear's.
For starters, after the Silicon Valley wipeout, 9/11, and a three-year bear market, nobody's kingdom is what it used to be. Although the financial markets have bounced back somewhat, Americans are hardly saving anything. Factor in the rising eligibility age for full Social Security benefits (age 67 in 2004), ballooning healthcare costs, and lower returns on investments, and a lengthy and luxurious retirement just doesn't compute. In a recent survey, only 39 percent of baby boomers thought they would have enough money to live comfortably once they retire--whenever that may be. And many seniors who can afford to stop working in their early 60s or sooner find they do not want the life of leisure.
"Retirement, as we know it, is dead," says Ken Dychtwald, president of the consulting firm Age Wave and author of many books on baby boomers and aging. "It's no longer an end. It's a turning point. A chance to take a break and then reinvent yourself." Retirement is morphing into a rich and enriching third act of work, education, and leisure. It still takes a good deal of money and planning to pull it off. But, as the boomers are about to prove, there is much more to having a life later in life than that.
A new start
"Rehirement" and "free-tirement" are two of many new buzzwords coined to describe this third stage of life. Retirement will be a cyclical blend of work (at what you want and on your own terms), education, and leisure, rather than a steady diet of Saturdays and a spot on the sidelines. This is as much a financial necessity as a psychological one. Very few people can afford to live well on a fixed income for 15 or 20 years. And a few extra years of earned income, even from a part-time job, can let your retirement savings compound over a longer period of time. "Drawing down even a little less upfront can have a huge impact on how long your money will last," says Harold Evensky of money managers Evensky, Brown & Katz in Coral Gables, Fla. Work for 10 extra years, for instance, and you will need one-third less to retire on. You'll not only be adding to your retirement account--you'll also be reducing how long the account will have to last once you retire.
Money matters aside, most baby boomers simply are not interested in heading for a rocker before they have to. They have many years ahead--16 on average for a 65-year-old man, 19 for a woman--and intend to live them fully. Seventy percent of boomers plan to hold a full-time or part-time job while collecting pension income, according to an AARP survey. "Retirement is a fluke of the 20th century," says David Ekerdt, a sociologist at the University of Kansas's Gerontology Center. "For people who are active and healthy, it's destructive. You can only play so much golf."
Time to save
As many as 25 million boomers, or nearly one third, have virtually nothing saved for retirement. So putting something away now and regularly, even seemingly trivial amounts, will matter a lot later. "Time is the most important ingredient in any retirement recipe," says personal finance expert and author Suze Orman, who also counsels savers to start clearing away their major debts--including the home mortgage--at age 45. "The key to affording retirement isn't just about having more money," she says, observing that people tend to spend more after they retire, not less, as conventional wisdom holds. "It's about having fewer fixed expenses." So start saving now. If you intend to retire in 15 years, according to one guideline, you should have more than three times your annual income banked already. At five years out, it should be more than six times current income.
The federal government is trying to make saving (and catching up) easier. Capital gains and corporate dividends are being taxed less, while limits on 401(k) contributions are now up to $16,000 annually for those 50 and older.
On the smarter-saving side, you need to reassess what you have and where you have it. "The earlier you sit down and figure out there's a problem, the less of a problem you'll have," says Evensky. Although 401(k) accounts were hit hard by the bear market, most people still have the bulk of their money (70 percent, on average) in stocks. That remains a good strategy, says Evensky, even though the returns won't be what they once were. Many financial experts say that the annual real return on stocks in dividends and capital gains during the next decade will be less than 6 percent annually, compared with an average of 11 percent during the past several decades.
You can't change that, but you can be smarter and more diligent about your investments. A typical 401(k) investor can choose from among more than a dozen mutual funds--including "lifestyle funds," with asset allocations targeted to specific retirement dates--yet invest in only three. It also is more important than ever to keep a keen eye on investment costs, such as fees, commissions, and taxes that can whittle away your gains.
Get a game plan
Saving for retirement should not be confused with planning for it. "Most people don't grasp that they may have 30 years in front of them when they retire, and they aren't sure what will make this stage of life meaningful," says Helen Dennis, a retirement expert in Redondo Beach, Calif. "Unfortunately, you can't put that on a spreadsheet." Since daily activity is so tied to quality of life, failing to have a game plan can be devastating. Last year, for instance, the average retiree watched 43 hours of television a week, says Dychtwald.
That's not exactly a definition of high quality of life, and depression is rampant among the elderly. Statistics show that white males in their 80s are the most suicide-prone age group. Dennis advises would-be retirees that before they take the step they should think long and hard about whatever it is that makes their life meaningful. "Take a clue from your past 30 years," says Dennis. "You are who you are, but what you have is an opportunity to express it differently." And whether you plan to work at a paying job or volunteer, lay the groundwork before you retire. Being busy is not enough. It's what you're busy doing that counts.
Polish those skills
Investing in your education, skills, and other "human capital" by returning to school, volunteering, and making contacts in your field before you retire can be worth more than what you have in the bank. Thirty years from now, as the 65-and-up share of the population balloons, there will be 2.7 younger workers for every person age 65 and older, compared with 4.7 now. That may not augur well for the success of the U.S. economy. But it does point to a large pool of available jobs for older workers because of a dearth of younger people to fill them.
Getting those jobs won't be a cinch, especially in light of society's ageist tendencies. It will be vital to be good at what you do and to keep your skills current. Although today's older workers have many more options than they used to, current employers can't be counted upon for help in finding them. "Educating workers on how to get the most out of their retirement is costly to companies and one of the first programs to go when costs are cut," Dennis says. Community colleges and universities can often help. Many older workers are hiring retirement coaches. Check out the International CoachFederation (www.coachfederation.org) and CoachInc.com (www.coachinc.com)
Increase your social security
The relationship kind, that is. "There can be trips to Tibet and cruises to Alaska, but it's the relationships people have with their families and friends that really sustain them in their later years," says sociologist Ekerdt. In surveys, many retirees say they spend more time simply enjoying their adult children and grandchildren than they do on any other activity. To further those relationships, many retirees are staying put, close to family and friends, instead of migrating to a warm and sunny retirement community. Or if they do move, it is often to follow grown children who have scattered across the country. In a new twist, retirees are even persuading their kids (and grandkids) to move with them to new multigenerational communities. Created by developers in metropolitan areas like Phoenix and Las Vegas, the idea is to mimic the small towns where extended families once lived for generations. These communities often include golf courses and elementary schools, water slides and water aerobics, high school seniors and senior citizens.
Although today's elderly have the lowest volunteer rate of any demographic group in the country--and the highest rate of depression--the boomers apparently have every intention of changing that. Opinion surveys consistently find that the next generation of retirees expects that volunteering and community service will be a "very important" part of their lives.
Turn back time
Exercise. Eat better. Lose weight. If there's one mantra about aging, it's that even a little more fitness and health can go a long way. Many baby boomers will reach retirement feeling younger and fitter than previous generations. But this is also an increasingly obese and sedentary nation. Killer medical conditions such as diabetes and heart disease--abetted by too many calories and too little exercise--are on the rise.
But the fountain of youth isn't reachable only by sweating and eating right. Studies suggest that simply spending more time around younger people can work like a B-12 shot to renew your energy, stimulate your mind, and keep you feeling young. That's one reason college towns are hot retirement destinations. Health clubs can provide a similar mix of the ages, exposing people of all generations to one another while they get in shape.
Many retirees wouldn't mind living out their years like former President Jimmy Carter. Sadly, though, many will end up like former President Ronald Reagan, with debilitating illnesses that require constant care. Medicare doesn't cover the costs of such long-term care or nursing home stays that AARP says can run an average of $4,700 a month. So you might want to consider long-term-care insurance, although this is still an evolving product that is both expensive and highly confusing.
Whatever your fate, though, it is better to prepare for it as best you can.
This story appears in the June 14, 2004 print edition of U.S. News & World Report.