The definition of retirement has changed dramatically from the way our parents and grandparents defined it. Today there are many paths depending on timing, experiences, priorities, dreams and financial circumstances. With all these options, how do we, as financial advisers, help our clients and prospective clients prepare for the retirement of their dreams? "Longevity and the New Journey of Retirement," Edward Jones' latest study with Age Wave, offers some insights.
We learned that while people enter retirement at different ages, and under different circumstances, there are four distinct stages in the new retirement journey. Each offers opportunities for advisers to help clients reflect on where they are and what they need to do to live comfortably throughout retirement.
Almost everyone approaching retirement can be doing more to get ready. Unfortunately, looking across the four retirement pillars of family, health, purpose and finances, a large majority of Americans enter retirement feeling less than thoroughly prepared, especially when it comes to finances and health.
The majority (52%) of pre-retirees interviewed said they're contributing to retirement accounts. However, only 29% currently work with financial advisers, while 24% of pre-retirees who have never worked with an adviser say they'd like to.
To help those in this stage, key questions to ask include:
• Do they want to change or maintain their lifestyle in retirement?
• What income do they need to support that lifestyle?
• If they need to catch up financially, can they take advantage of catch-up contributions to their retirement accounts?
• What do they need to learn about life and activities in retirement?
This is a transition period when new retirees are getting used to what being retired means for them. They may feel freed from the day-to-day grind of a full-time career, but they're often anxious about how well they’ll adjust to being retired, how they’ll spend their time in ways that provide them with a sense of purpose, and how they’re going to afford the potential decades of life in front of them. While 72% of new retirees claim they feel financially prepared for retirement, 48% say they worry about outliving their money. To address their concerns, those in this stage should consider:
• Whether their spending habits changed the way they planned for retirement.
• What expenses they have that weren't planned for before retirement.
• What opportunities exist to generate additional income if needed.
• Whether there are new things they want to try to achieve a greater sense of purpose.
The heart of retirement and the longest part of the journey, this is when retirees hit their stride and are actively shaping their new lifestyle. They continue to explore who they want to be and what they’d like to be doing in this new chapter of their lives.
In this stage, only 35% describe their finances as fully on track and in great shape, and many are looking for ways to course-correct, particularly in today’s economy. Over half (57%) have taken action since retiring to be more financially comfortable and keep their worries at bay, most commonly downsizing their homes (15%) or moving to less expensive locations (15%).
Key questions an adviser may ask clients in this stage:
• What have they been putting off doing and enjoying? If they can afford it, this may be the time to do it.
• Are they doing everything they can to maintain and improve their health?
• Are they spending the right amount of time with family and staying socially active?
• Are they prepared to meet potential caregiving costs?
In this stage, retirees have the wisdom, experience, and hindsight to appreciate this chapter in their life. Most feel relatively secure and have learned how to live within their means. They've experienced more loss, including personal and family health issues and the deaths of some family members and close friends — and they've had their resilience challenged. Maintaining their health is far and away their greatest worry.
Legacy and end-of-life planning become crucial in this stage, and yet there are many who haven’t taken the steps required yet. While two-thirds of retirees in this stage have a will, less than half have a power of attorney or health care directive. Those are the three basic, most recommended documents, and only 32% have all three.
Questions retirees in this stage should consider include:
• Do my living arrangements provide the right mix of independence and available care?
• How will I avoid isolation and loneliness?
• Are my contingency plans for long-term care adequate? Can I avoid becoming a burden on my loved ones?
• Have I completed my basic legacy documents, kept them up to date and discussed them and my end-of-life preferences with my family?
• What values am I modeling for my family and should I document them and the life lessons I want to pass down?
While everyone’s retirement experience is different, one thing is clear from the research. Retirees who report better quality of life took more steps decades in advance to prepare and plan across all the four pillars of finances, purpose, family, and health. As advisers, we have the opportunity to help our clients take steps early in their lives, or course-correct as unexpected challenges and opportunities arise, to comfortably and confidently live out their retirement dreams, whatever those dreams may be.
Ken Cella is principal for branch development at Edward Jones.
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