Our expectations about retirement are so late-20th-century. Even after the financial crises of the past 10 years and despite the extended lifespans that many will achieve, retirement continues to be portrayed as a period when work ceases and “life” begins. Grandchildren, travel and days of leisure await those who did the proper planning and right amount of saving.
For the majority of Americans, that notion has become a fantasy.
The truth is, the retirement advice industry is lagging behind the new reality clients are facing. Financial advisers remain fixated on helping clients set dates and dollar amounts.
Should they retire at 65 or 70?
Will a $1 million nest egg be enough?
What is the right drawdown? Four percent a year?
Retirement in the modern era likely will be a time of new work, not no work — a time when people transition to new careers after being retrained and outfitted.
That changes the entire notion of retirement planning.
SEGMENT OF LIFE
Now instead of focusing on dates, nest eggs and drawdown amounts, advisers must help clients prepare for the last segment of life, a time when they likely will work both at a job and on their golf game.
In this version of retirement, individuals and society are better off.
Not only does it provide more financial security to retirees, there are positive psychological benefits. Those who work in retirement typically report feeling happier and more fulfilled than those whose professional lives shift into idle.
Dire statistics demonstrate that the vast majority of Americans don't have the financial means to retire.
Despite efforts to educate people on the need to plan and save, just two-thirds of Americans have saved anything for retirement, according to the most recent retirement confidence survey from the Employee Benefits Research Institute.
Unfortunately, 57% have saved less than $25,000, not including ownership in their primary home and defined-benefit plans, the survey stated.
Shockingly, 28% of respondents have saved less than $1,000.
Clearly, this isn't enough money to afford what we consider a traditional retirement.
In addition to the financial challenges posed by the traditional notion of retirement, there is also the psychological dimension as to whether people really want to leave the workplace at a predetermined age. Many 65-year-olds have the energy and desire to continue working, though perhaps in a different capacity.
Working during retirement doesn't necessarily mean toiling away at the same job as in pre-retirement.
It can mean taking the opportunity to learn new skills and work in a different area. It can also mean working part time rather than full time, or negotiating a benefits package that involves more paid or unpaid time off.
Retirement is a fairly recent phenomenon. In the past, life expectancy was much shorter, and those lucky enough to live a relatively long life worked until they were no longer capable, and they didn't live long after they stopped working.
Even now, different cultures consider it normal to continue working for as long as people are able, though perhaps in a different capacity. This can be seen across the globe.
Although citizens can start claiming benefits at between 60 and 65 in Chile, Japan, Korea, Mexico and Turkey, the average retirement age last year was still about 70.
Advisers need to help clients move beyond the old notion of retirement as a time of all play and no work. This isn't the life that many will have in their golden years, so planning for it is counterproductive.
By helping clients reframe what retirement means, advisers can help ease the anxiety many clients feel as they approach what Social Security deems “full retirement age.”
Change the nomenclature. Think strategy rather than plan.
A strategy allows for contingencies. It specifies types of actions to take, depending on what scenario unfolds.
A plan can be in support of a strategy, but when situations change, plans must change.
A financial planner who broaches retirement discussions with “What next?” rather than “When?” will help clients feel less anxious about retirement, less conservative with their investments and more realistic about what the next phase of life will be like.
Wayne Badorf is head of intermediary sales at Wells Fargo Asset Management. Brian Jacobsen is chief portfolio strategist at Wells Fargo Funds Management.