When contemplating retirement, a review of the past, present, and future highlights the relatively recent and complex evolution of this modern concept writes BRIAN SKROBONJA, CHARTERED FINANCIAL CONSULTANT (CHFC®) in Kiplinger.
From Ancient Trades to The Gig Economy
Chartered Financial Consultant Brian Skrobonja recently wrote: “here we are, in an era where retirement is not just a possibility but a widely anticipated and meticulously planned stage of life. But this transformation to where we are today didn’t happen overnight. It was a complex evolution, marked by societal shifts, economic developments and, most critically, the profound extension of human life expectancy.”
Ancient societies focused on daily needs through trades like farming and artisan work. People worked cooperatively from dawn to dusk, and from childhood until death or disability. Often three or four generations lived close together and supported one another throughout the lifespan. Only military veterans had any type of pension.
The industrial revolution in the late 1700s shifted people from fields to factories, altering the composition of households and communities and changing the nature of work. Many younger individuals and families moved to cities, leaving the older generation behind on the farm.
Factory work was often dangerous, and if someone was injured or was no longer able to work effectively they would lose their source of income. Private companies introduced pension benefits to usher older workers out of the workforce, making way for younger, cheaper labor.
The 1900s continued the shift from personal and community responsibility to government-led initiatives like Social Security. When Social Security was introduced in the United States in 1935, in the midst of The Great Depression, the retirement age was set at 65, but the average life expectancy was just 59.9 years for men.
Challenges in the Current Retirement System
Today, the average life life expectancy in the US is 74.12 for men and 79.78 for women. Currently there are close to 90,000 Americans over the age of 100! Aging baby boomers, declining birthrates, and a shrinking workforce pose challenges to programs like Social Security and Medicare.
There has also been a shift from reliance on the “three-legged stool” of savings, pension, and Social Security to more people relying only on Social Security. Currently, 40% of older Americans rely solely on Social Security retirement income.
Social Security was never intended to act as the sole retirement income for such a large portion of our older population. It was also never intended to pay out for decades for individuals living 20, 30, or 40 years in retirement.
Navigating Longevity with Limited Financial Resources
Skrobonja writes: “There are many factors to consider when it comes to retirement, but in my opinion, nothing influences retirement more than the increase in human longevity. Retirement was once considered a necessary transition when a person was no longer productive in their work and had a short life expectancy once retired. Today, people are retiring when they are still fully capable of working, and that is where the chasm exists.”
Longer lifespans necessitate retirement planning that extends resources to maintain lifestyle, widening the gap in retirement realities. Those who are able to work later in life, and those who have saved and invested wisely will have many more options in their later years.
A Paradigm Shift in Retirement Planning
Retirement is a relatively new phenomenon in human history which has evolved, and continues to evolve. The way we define retirement is changing because a lot of the old thoughts and theories around retirement have relied on shorter life expectancies. Many Baby Boomers have started new careers in their 60’s and beyone. Some work because they need the income – others for socialization, personal fulfillment, or other reasons. As you look to the future, you should be cognizant of the following three factors that contribute to what retirement means to give yourself the best opportunity for success.
- Many people are redefining the second half of life by continuing to contribute to society through a second (or third) meaningful career or business.
- Older adults are continuing to build wealth and lessen financial stress on assets by staying actively engaged in the workforce.
- Elders are sharing their wisdom and experience through mentorship, leadership, entrepreneurship, volunteerism, and advocacy.
- Many older adults are able to transfer risk through insurance and annuities to safeguard against unforeseen financial problems.
- It may be wise to transition to tax-free assets to reduce exposure to future tax increases.
- Advance Directives, Trust Planning and other legal strategies can reduce your risk of financial fraud or exploitation.
- A closer focus on good health can reduce the risk of costly and life-altering medical conditions.
- Retirement planning should be seen as a team sport, involving collaboration with a financial adviser, elder law estate planning attorney, insurance agent, and CPA, and others.
Embracing a New Retirement Paradigm
Skrobonja concludes: “Embracing a new paradigm that sees retirement not as the final act, but as an intermission can shape a winning strategy for the future.”
Embrace your retirement opportunities by contacting our office today to ensure you have your legal ducks in a row! We are here to help.