The retirement you saw your grandparents — or even your parents — live through will likely not be the retirement you choose for yourself. Consider the following:
•In 1900, the average life expectancy was 47 years. Only 100,000 Americans lived to age 85.
•By 2010, the number of people over 85 years old had grown to 5.5 million and was one of the fastest-growing segments of our population.
•By 2030, as the last baby boomers turn 65, older adults are expected to reach 20% of the population, and by 2050, 19 million people will be in the 85+ age group.
The point is clear; people are generally healthier and living longer than ever before. Those with better than average education and access to health care will likely beat the longevity averages and many will live well into their 90s.
When Social Security was created back in 1935 (with benefits starting at age 65), the average life expectancy was 61 years old. Planning for a lengthy retirement simply wasn’t a concern. Today, however, medical advances are increasing both health span (how long you are free from disease and disability) and lifespan (how long you live). Roughly 10,000 people turn 65 every day, and they are increasingly likely to live 25-30 years beyond that traditional retirement age.
Picture your life in overlapping 25-year time spans: birth to 25; age 10 to 35; 20 to 45; and 30 to 55. Consider how much you grew and changed during each of those periods. Now imagine the life you will live between 65 and 90, assuming that much of that time you will be relatively healthy and productive. This period is increasingly becoming known as the longevity dividend or longevity bonus, an exciting time that past generations have not had. This longevity dynamic changes the way we must view retirement and how we will live.
Now let’s divide your life into 4 “quarters” of about 25 years each.
The first quarter’s milestones tend to be triggered by specific ages: your first birthday, starting school, getting a driver’s license, being allowed to vote, and beginning to figure out who you are as you become established in your 20s.
The second quarter’s milestones tend to be more event and growth oriented, not age-based: marriage, your first house, your first child and then growing in your career as you raise your family. Your income rises, but so do expenses, and you ideally begin setting aside significant amounts for college, as well as in a 401(k) plan or IRA for your own retirement. This is a period when you may often be defined by what you do for a living rather than who you are as a person.
During the third quarter, you become eligible, based on your age, for certain government (and possibly company) benefits. At age 50, you’re allowed to make extra “catch-up” contributions to your IRA and 401(k) plans. At 59½, you can begin withdrawing money from such plans without penalty. At 65, you become eligible for Medicare benefits. You can begin receiving Social Security benefits at different times: age 62 (at a discounted rate), between 65 and 67 (your “full retirement age” rate), or at 70 (at a higher rate). At age 70 ½, you must begin taking required minimum distributions (RMDs) each year from your IRAs and other tax-deferred retirement accounts.
The third quarter is also about transition when the idea of retirement morphs from a rather vague concept to a much more concrete awareness, with future plans solidifying as life’s traditional goals are reached.
Children are grown, tuition payments have ended, mortgages are nearly paid off, and career duties may have become less rewarding or stale. You begin to think about what’s next; you are ready for more flexibility, and the chance to explore what else life has to offer. You also have a greater perspective on what is important in your life, and you desire to be that person, and live that life. This is a period where you are defined far more by who you are than by your job.
The fourth quarter is about slowing down, downsizing and leaving a legacy for your family, friends and community. This is a period of defining how you want to be remembered.
Don’t plan for retirement — plan for an ‘encore life’
An encore life is something that begins during, and is an extension of, the third quarter of life, thanks in large part to the longevity bonus. It should be a time of new found freedom and flexibility.
The concert has not ended; the audience is so happy with the performance that they cheer for an encore — expecting to hear the best, most famous songs.
Do you love your life and feel totally satisfied with it “as is”? Congratulations! Don’t change a thing. But many people are ready to rediscover who they are, and what they want to do next with the considerable time they have left.
Here is a framework that can help you focus on making the most of your third quarter and creating your encore life:
1.Self rediscovery: Take some time for reflection, asking yourself questions about who you are and what you want to do in the next stage of your life.
2.Health and wellness: Address your physical, mental/cognitive, emotional and spiritual health, including diet and nutrition, fitness and exercise. “When you have your health, you have everything. When you don’t have your health, nothing else matters.”
3.Money and financial planning: This includes retirement income planning, estate and philanthropic planning, planning for Social Security, Medicare, long-term care and managing health care costs.
4.Family and relationships: Having a strong support network and social interaction with others does wonders for your health and outlook on life.
5.Employment or paid work: This includes continued career growth, career change, career transition, and part-time work to earn money either because you need to or because you enjoy it and want to.
6.Community and civic engagement: This is about giving back to your community through involvement in civic, cultural, religious and/or service organizations that you feel close to and strongly about.
7.Lifelong learning and personal development: This might be maintaining and developing relevant skills and abilities in order to continue meaningful work, or new learning for personal reinvention, reward and achievement.
8.Leisure and entertainment: What you do for fun. This could include travel, entertainment, creative activities, hobbies, and however else you enjoy your free time.
9.Lifestyle and housing: This typically involves the transition from living in your current home to downsizing, whether to a smaller home or into a retirement community. It may be near the city for entertainment and services, or out in the country in the fresh air and away from the hustle and bustle.
Retirement planning, as we have traditionally considered it, will prove insufficient for the years most people will actually spend after their careers are over and their children are on their own. Instead, planning for retirement should be expanded to include longevity planning, and should contemplate the lives people want to live during those extra years. Make the most of your third quarter; plan for an encore life.