BERLIN – For years, retirement planning was a matter of simple arithmetic. With the house paid off and the children moved out, expenses were easy to project. Social Security combined with a company pension to create a predictable income, and any shortfall between projected income and expenses told you how much you needed to save to cover the gap.
All that is changing. Baby boomers, the generation that has greatly influenced U.S. culture over the years, are now rewriting those old retirement formulas. This generation views its retirement not as a stopping point but as a new beginning, thus the new calculation for retirement has taken on new complexity. These issues were made very clear in Merrill Lynch’s New Retirement Survey, a survey of 3,448 U.S. adults aged 40 to 58 by Merrill Lynch, Harris Interactive and Ken Dychwald, Ph.D., a noted gerontologist and author of several books on the baby-boomer generation and aging, including Age Wave.
According to the survey, 76 percent of the respondents plan to work in some capacity in retirement, with many planning to alternate between work and leisure as they want and need to. Further, more than half (56 percent) of those who want to continue working after reaching retirement age want to do it in an entirely different line of work, and 13 percent want to start their own business. It’s not primarily about the money. When asked about the top reasons to work, respondents were twice as likely to cite staying mentally active as they were to cite needing the income.
Increases in life spans, baby-boomer preferences, workforce demographics and financial realities are converging to completely redefine retirement. Since Social Security established the “normal” retirement age at 65, the life expectancy for a 65-year-old has increased by approximately seven years, meaning most retirees need to plan to live another 20 to 30 years or more. But rather than being “old” and retired longer, respondents to the survey plan to use this longevity bonus to live “younger” longer.
Increased longevity means assets will not only have to last longer, they will also have to be structured differently based on how individuals choose to spend their “bonus.” For instance, retirees who want to start their own business will need upfront capital to get it off the ground, as well as an outside source of income until the venture turns profitable.
Another issue that can complicate retirement planning is caring for oneself and one’s family. In fact, health care is one of the top concerns cited by the survey’s respondents. Along with the desire to stay mentally active, being able to afford health benefits is a main reason boomers plan to keep working.
There is no definitive age when this new life stage begins. Rather, it is dependent on the individual’s assessment on when they have accumulated the resources needed for “financial freedom.” For years, baby boomers have been told that they are not financially prepared to retire. But those benchmarks of financial preparedness were based on their parents’ version of retirement.
Boomers will have increased earning, saving and compounding years. And they will not have to tap retirement savings as their primary source of income until much later. According to our survey results, the retirement most boomers envision is achievable – as long as they plan appropriately.
To make the retirement you envision a reality, you need to consider every piece of your financial life: your assets and liabilities, your taxable investments and your tax-deferred ones, your long-term investments and your short-term cash, your business finances and your personal ones. Planning for retirement may be more complex than when your parents retired, but it is well worth the effort if you want to fulfill your dreams.
(The writer is a Merrill Lynch Senior Financial Advisor. She can be reached at 410-213-9084.)