The word "retirement" conjures up visions of leisurely days spent traveling, dining at fine restaurants, golfing, volunteering and getting together with friends. Unfortunately, only very, very few of us are going to be able to live the dream.
The reason for my negativity is that very few households have saved enough to be able to afford such a lifestyle for the 20, 30 or more years they are likely to live after they retire in their early 60s. Average life expectancy has nearly doubled between 1900 and now, from the upper 40s to the low 80s. And if you're a married college graduate who exercises regularly, goes to the doctor and dentist religiously and avoids self-destructive behaviors such as smoking and sky diving, you are likely to live even longer than average.
What makes "traditional" retirement even more of a remote possibility is the likelihood that scientific advances will extend life expectancy significantly.
Advances in genetic research, biotechnology and nanotechnology may create innovative breakthroughs that will increase longevity. With work being done by companies ranging from major pharmaceutical firms to small startups, we may see results in as few as five or 10 years that could increase life expectancy to nearly 100.
While longer life expectancy is welcome, it will change retirement.
Since 2001, SRI Consulting Business Intelligence has been watching a small but growing, avant-garde group engaged in what we call "revolving retirement." As of 2006, we estimate that about 5.5 million households are in this category, whose members engage in activities that sometimes seem like retirement and sometimes don't even resemble pre-retirement. Other studies have looked at this group and described its members as semiretired, working retired or never retired. Regardless of what you call them, group members share a defining characteristic: They are not retiring in the traditional manner, and their need for different financial advice and services reflects this uniqueness.
People are choosing to live in revolving retirement for several reasons. Some, as members of two-income households, are simply biding time until their spouse retires. Others are unable to disconnect entirely and want to remain active, involved and challenged. Some have retired and, after a couple of years, find themselves drawn to new challenges in different areas. Some are forced to seek gainful employment simply to make ends meet. Others may engage in volunteer work that ends up becoming a second career.
Revolving retirement will grow because it appeals to the boomers' sense of idealism while solving the pragmatic challenge of making up for inadequate savings over most of their adult lives. In fact, revolving retirement is the future. Whether by choice or necessity, more households will find that they need a passage from pre-retirement, where they focus on accumulating as much wealth as possible, to retirement, where they live off of their assets and income. Revolving retirement provides a way to put off drawing down savings (and possibly even add to the pool) while taking "time off the clock," hopefully to the point where savings can support a desired lifestyle. Revolving retirement also provides people with an opportunity to remain active and productive, and make a real contribution.
There are no pre-established paths for this new life stage. People could work several days a week or simply several months a year. They might relocate or stay where they are. They might start a business or simply hang out a shingle as an independent contractor. They might even stay with their prior employer but become more of a part-time employee, taking a lower salary in exchange for continued benefits.
Unfortunately, there are no financial products specially designed or packaged to meet the needs of the revolving retired. Still, it is where financial manufacturers, distributors and advisers may find the greatest opportunity.
Boomers and subsequent-age cohorts will require a point person to help them navigate these uncharted waters. Because of the demographically driven, economically necessary and psychologically pleasing solution to the challenges facing boomers, this may be an opportune time to start or expand a financial advice practice. As weird as it may sound amid the market chaos, the best probably is yet to come.
Larry Cohen, vice president and director of consumer financial decisions at the Princeton, N.J., office of SRI Consulting Business Intelligence of Menlo Park, Calif., can be reached at firstname.lastname@example.org.
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