The New Look of Retirement: The Changing Landscape
Retirement is often perceived as the culmination of one's working life, ushering in an era of leisure and relaxation. However, the landscape of retirement is undergoing a profound transformation, primarily due to increasing life expectancy. Today, retirement is not merely an exit from a career; it's a new chapter that offers individuals the opportunity to redefine their sense of purpose and relationship with work.
Surprisingly, nearly half of current retirees have either worked or intend to do so in their retirement, and approximately 70% of pre-retirees plan to stay engaged in the workforce. In recent times, I've engaged in numerous discussions with clients regarding the concept of working during retirement, and I'd like to share some insights.
Why Retirees Choose to Continue Working
While there's a common perception that retirees return to work because they don’t have enough retirement savings, a substantial majority, over 80%, do so because they want to, not because they have to. Many retirees find that working keeps them mentally sharp and connected to others, contributing to a fulfilling retirement experience. According to a study by Age Wave, an organization focusing on aging trends, there are four distinct types of working retirees:
Driven Achievers: About 79% of them feel they're still at the top of their game, with 39% owning businesses or being self-employed. They are highly satisfied with their work and often exhibit a workaholic attitude, even in retirement. These individuals will benefit from checking out Setting Goals for Retirement.
Caring Contributors: These retirees seek to give back to their communities or support worthwhile causes. Forty percent work for nonprofits, and more than a quarter engage in unpaid volunteer work, driven by their desire to leave a positive legacy.
Life Balancers: Their primary motivation for working during retirement is to maintain workplace friendships and social connections, while also earning some extra income. They typically opt for fun and low-stress part-time work.
Earnest Earners: These individuals continue working to reduce the financial strain on their retirement portfolios and maintain their desired lifestyle. They often take on roles as thought leaders, consultants, or board members to sustain their income.
Interestingly, the same study reveals that nearly half of those who work in retirement took a career break immediately after retiring, lasting an average of around two and a half years. After this intermission, retirees often choose part-time roles that align with their interests and bring fulfillment. Entrepreneurship among retirees is also on the rise, with many embarking on new business ventures during retirement. This can help broaden the opportunities in your financial plan and allow you to contribute longer to your retirement accounts.
Retirement planning has expanded to include various approaches, depending on the level of engagement retirees choose:
Traditional Retirement: This has been the prevailing retirement model historically. It involves working until age 65 (or until you reach full retirement age) or financial readiness and then embracing a leisure-focused retirement. Income typically comes from the Social Security Administration and personal assets.
For this approach, early saving, annual savings goals, and an asset-focused portfolio have been the norm. If this is your goal, establish your nest egg early to save for retirement.
Semi-Retirement: This alternative approach involves scaling back working hours (work part-time) rather than exiting the workforce entirely. Semi-retirees anticipate ongoing paid work, which contributes to personal fulfillment, well-being, and financial stability. Factoring in income from semi-retirement can reduce the overall savings needed for retirement, potentially enabling earlier semi-retirement and a longer overall working lifespan.
Temporary Retirements/Sabbaticals: Some individuals take breaks from work at various points in their careers. Serial entrepreneurs who sell one business before embarking on the next venture often have the opportunity to enjoy this benefit. Such breaks affect the required liquid cash and the amount of risk one can assume, as each new venture may carry high risks.
In light of these diverse approaches to retirement, it's crucial to recognize that retirement takes on many forms. We can help you devise an integrated approach to wealth management tailored to your retirement needs. As some individuals begin looking beyond the challenges of the COVID-19 era and start planning for the future, there's no better time than now to collaborate and shape the next, best decade of your retirement journey.
