Transform the way you look at retirement

The concept of retirement is evolving, as people look at options beyond “traditional” retirement, like phased retirement, second “later in life” careers, and alternative income streams. So, how, and why, are we redefining retirement?

Historically, people used to retire at 65. Think of your grandparents and their friends. They typically had a pension, Social Security, and if they had their own money — like mutual funds or stocks — they were considered rich. Their pensions replaced a certain percentage of their salary, so they anticipated living on less money in retirement and adjusted their expectations accordingly. They often lived a simple life, staying local and enjoying simple, inexpensive pleasures. Also, their life expectancy was shorter than today.

Things are different now:

• Life spans have increased dramatically. Today, it’s not unusual for people to live until age 100 or older, meaning they may be retired for almost as long as they worked. Longer life expectancies have changed the definition of retirement, as people need significantly more money for retirement today. And inflation is making their money, and their savings, worth less now.

• Pension plans are far less common. The onus has shifted from employers funding retirement plans to self-funding them with 401Ks. It’s challenging and expensive for employers to fund pension plans when their employees are living for a longer period of time because it drives up the cost of their businesses.

• People’s expectations have changed. Going into retirement, people no longer think, “I’m just going to hang around and knit.” They want to travel, play golf and enjoy themselves after working so hard to get to retirement, and they need money for these activities.

As you approach retirement age:

• Consider what retirement looks like. Write down your expectations. If you’re considering quitting work entirely, what will you do each day? Are you excited about the possibilities, or concerned that you’ll be bored? Do you want (or need) continued income? Also, your spouse should do this exercise to determine whether your expectations are aligned. If one of you wants to retire and the other wants to keep working, what will that look like?

• Look at your financial plan. When you get to retirement, your asset base and net worth should be at their highest point ever. Sit down with a trusted financial advisor to evaluate your next steps. Do you have enough money to retire? How is your money positioned to fund your retirement? If you have multiple accounts, which should you use first?

• Get your ducks in a row. Ensure that you have a will, living will, estate planning documents and proper medical coverage — especially if you retire before Medicare age. Also, have umbrella liability coverage. If you get into an automobile accident and someone sues you, you don’t want them taking a chunk of your money because your insurance isn’t up to snuff — and that can happen.

• Participate in a 401(k). You’ll likely need significant money in that plan to fund your retirement. The average 401(k) balance may not be enough to allow you to maintain your preferred lifestyle. Talk to your financial advisor about your retirement goals and determine a plan to help you achieve (or exceed) these goals.

• Keep doing what you’re doing. If you love what you do, you don’t have to stop doing it. Perhaps you’ll want to scale back — like stop working on Fridays — but continue working four days per week. You may be able to define (or redefine) what retirement means for you.

• Do something else. Phased retirement offers the opportunity to do anything that’s emotionally or intellectually rewarding. Work at a bookstore if you love books.

Be a greeter at Home Depot. Start another business. Spend time doing things you love.

There are several important underlying factors that have helped redefine retirement in recent years. Longer life spans, the shifting responsibility of funding and the changing expectation of retirees have transformed the way we look at retirement.

Today, people want to go places, do things, and be active. That takes resources. It’s important to work with a trusted financial advisor, who can look at the big picture, consider your assets, goals and lifestyle, and help you develop a plan for a comfortable and confident retirement — whatever that may look like to you.

Joseph H. Guyton is principal of The Guyton Group. He has over 35 years of experience providing professional knowledge in retirement income planning, pension, profit sharing and business succession. You can reach him at guyton-forge.com.