It’s a warm and sunny day here in Akron as I write today’s article. And what better kind of weather to talk about retirement. Specifically, how retirement is changing. Be patient as I want to share some thoughts on recent data related to retirement. This is based on articles I have come across and my observations within my practice and also talking with other advisors.
First off, and this should not be a surprise to anyone, retirement is a changin’. There are estimates the concept of retirement started in the 18th century. However, the more modern version of retirement has been around for roughly 130 years as Germans were paid a pension to stop working at age 70. A lot has changed during the last 130 years though.
In 1900, the global life expectancy was 31 years of age. By 2019 that number is just under 73 years. Dramatic improvements in life expectancy is important when we look at Social Security. It was created in the mid-1930s and the retirement age then was 65 years old. During that same time period, the average life expectancy for the American male was well under 65 years at 58 years.
As time progressed and people started living longer, the concept of retirement changed from hoping to make it to full Social Security age and has been replaced with images of older couples wearing linen clothing walking down the beach. Or maybe those are just the images I see😉 The salient point here is the vision of retirement shifted to having fun and enjoying those post-65 years as people lived longer.
Over the past few decades there has been a big push to get people to retire as soon as you can so you can take those walks down the beach. And I won’t mention how the financial services industry has pushed this goal as it is easier for them to make money if your money isn’t in 401k plans. However, the past few years has seen an ever so slight change in what retirement looks like now.
I am starting to see more articles about how the Covid world has now created a world of “unretirement.” There are currently a confluence of events coming together where more people of retirement age are saying they want a different kind of retirement.
First off, many people of retirement age went ahead and retired during Covid. Between stock market growth, health concerns about catching Covid at work, stimulus checks, and even increased home values there was a golden opportunity to no longer punch the clock. We are now starting to see a bit of a change from this approach though.
Data is coming out showing growing numbers of these “Covid-retirees” (I don’t know what else to call them) are returning to the workforce. Reasons include dropping values of their retirement assets and increases in inflation. The lowest unemployment rate in 60 years also has made lots of job openings available for workers who may have otherwise been ignored a few years back. Additionally, Covid is less of a concern within this retiree age group as over 90% of Americans 65 and older are vaccinated.
The big transition I have been seeing and the data backs me up is people are moving to their own version of retirement. It is no longer as simple as giving notice, having the retirement cake, getting the gold watch, and then never working outside the house again. Nope. Instead, retirement is taking forms like going back to work, but maybe within a different position at your former employer. Or to a completely different profession, like moving from a desk job to working at a park. My personal favorite are the transitions into semi-retirement. These are the situations where the person keeps their current position but is working a reduced schedule. You know, instead of 60 hours a week they are doing 20 hours in two or three days a week. For these situations people are saying instead of stopping full-time work at 65 they can do part-time until 70 or later.
There are a ton of benefits with this form of retirement, or unretirement as some people are calling it. From a financial perspective, the longer you can delay touching your retirement savings the better the odds are you will not exhaust them before you pass. There is a ton of knowledge that can provided by having older workers too. I’m pretty sure we have all heard the term institutional memory. Unhappy retirement is a common trend too. Studies show being active in retirement improves happiness and this often is driven by working outside the house. Finally, and this is what I see the most, is doing some sort of work in retirement is key to staying mentally sharp and engaged.
Personally, I cannot see myself retiring before I am 70. Physically my job is easy. Mentally I stay engaged and challenged. I have clients I like and I think they like me😉 And, as my own boss I dictate how much I want to work. This means I know how many clients I want to work with so I can still do things like have evenings and weekends free for fun.
Obviously everyone has their own desires of retirement. Maybe it is to get away from the boss you cannot stand one more day. Or there are lots of items on your bucket list you want to start crossing off. The important takeaway is retirement is no longer a one-size-fits-all scenario. If you want to keep working a few hours a week then do it. Let someone else buy those linen pants and shirts for the walks on the beach.
I’m Dan Johnson, CFP®, founder of Forward Thinking Wealth Management. I run a flat-fee financial planning and investment management firm located in beautiful Akron, OH. Although I am in Akron, OH, I work with clients regardless of location. I cater to owners of equity compensation positions who are looking to organize their financial lives, keep more of what they make, and do the things they want in retirement and even now.