How Do We Define Retirement in 2022?

In August 2022, tennis player Serena Williams announced her plans to retire from tennis at age 40. Retirement, Williams wrote in Vogue, was a word she never liked or believed felt modern. “Maybe the best word to describe what I’m up to is evolution,” Williams wrote. “I’m here to tell you that I’m evolving away from tennis, toward other things that are important to me.” Williams is a millennial and part of the generation that now has an evolving vision of retirement, according to Schwab’s Retirement Reimagined Study. The study used advanced predictive modeling techniques to forecast key differences in how millennials, Gen Z and boomers approach saving for and living in retirement. The traditional view of retirement has long had life’s proverbial finish line undertones. Many have focused on target savings necessary to retire. Depending on the type of calculator you use, maybe you need $2 million to retire or maybe it’s $4 million or more. Others have seen it as a date. By age 62, retirees can start collecting Social Security benefits. A changing of the retirement guard is underway, in the current inflationary period marked by rising costs of living and when seemingly every generation carries some form of debt. Millennials are reimagining the way we prepare for and envision life in retirement in 2022 and beyond.

Longer Lifespans Mean Focusing on a Higher Quality of Life

A small, but significant, detail often overlooked when discussing retirement is it’s still quite new. Up until the middle to late 19th century, all over the world, there really wasn’t any concept of retirement like we know it today, said Ben Barzideh, RFC and wealth advisor at Piershale Financial Group. Here’s what retirement plans looked like for previous generations. “People worked for as long as their bodies would allow, then moved in with their kids who took care of them for the remainder of their life,” Barzideh said. If it sounds anticlimactic, remember the average life expectancy was also much shorter. Most lived to age 40. Today, most people live a quality of life unavailable to people in the past. However, because of increased longevity, Barzideh said people need to make sure they plan for a longer lifespan and have the necessary retirement assets to live the quality of life they desire. Today’s retirees are not only conscious of healthcare costs, one of the single greatest costs in retirement, but they are also focusing on taking care of their physical and mental health to maintain a high quality of life for as long as possible. The first 10 to 15 years of retirement are often considered the best since retirees are younger and healthier — and those who work to get in good health now will create better outcomes for their later retirement years.

We Want a Purpose-Driven Retirement

Michael Liersch, Ph.D. in behavioral science and head of advice and planning for Wells Fargo Wealth and Investment Management, said he has noticed something changing about the way today’s retirees answer the question “What do you do?” Twenty years ago, a retiree would respond to this question by saying they are retired. They might also reveal their former job title. In 2022, Liersch said the narrative is purpose-driven. Today’s retirees might say “I’m taking cooking classes” or “I’m growing my own vegetables and am learning about beekeeping” and share what they are doing in retirement. In Schwab’s study, a purpose-driven narrative aligns with millennials and their shifting expectations for living in retirement. Millennials value new experiences and flexibility in retirement, contrasting with boomers who value stability and consistency. Only 48% of millennials are predicted to own a home in retirement, but 61% of millennials will prioritize travel. “What do you do?” “I’m driving cross country on the road” or “I’m flying to New England to enjoy the autumn season” are some of the purpose-driven responses we might anticipate hearing more of in coming years from retired millennials.

Careers: Going From Light Switch to Fader Switch

John Shrewsbury, RICP co-owner at GenWealth Financial Advisors, echoes Liersch’s sentiment about purpose-driven retirement. Shrewsbury said retirement has transformed from a “light switch” to a “fader switch.” Retirement in 2022 is not about setting a date when someone goes home and does nothing. Rather, it is a transitional period. Part of this period may include leaving a high-stress, high-paying job to work in a role or pursue an activity that pays less but is enjoyable. Yes, there is a reduction in income — and some may tap into retirement savings to make up for it — but the payoff is worth it for what Shrewsbury calls “work-tirement”: a more enjoyable work environment, a change of scenery on the job front and a schedule that lets individuals ease into retirement rather than all at once. “It is not unusual for someone who goes into retirement cold turkey to find themselves missing the socialization work provides,” Shrewsbury said. “Those folks are likely to un-retire or go back to work because the reality of life at home with nothing to do is not something they find enjoyable.”

Mini-Retirements and Sabbaticals Making Up the Next Retirement Wave

Kelly Klingaman, financial planner and founder of Kelly Klingaman Financial Planning, said she doesn’t do any traditional long-term retirement projections until she’s more than a year into working with millennial clients. This is because the millennial client families Klingaman serves have so many other moving parts to their lives that they want to address first. “I see another version of a nontraditional retirement happen in Gen Y where someone will spend 10-15 years excelling within a large corporation only to quit at what critics would claim is the peak of their career,” Klingaman said. “Instead, they’d prefer to pursue more fulfilling work like starting their own business or working for a company making far less money because the work is more aligned with what they value most.” Klingaman said millennials especially are normalizing the idea of taking mini-retirements or sabbaticals. Similar to the results in Schwab’s study, they are saving money to cover expenses for a year, quitting their corporate gig and traveling around the world while they’re still young and healthy enough to enjoy this sort of adventure to the fullest extent. Mini-retirements and sabbaticals are just the beginning of how retirement will continue its evolution. There is a possibility of taking sabbaticals periodically during your working years to re-educate yourself to take on different types of work. However, for this to happen, Shrewsbury said Congress will need to change the paradigm for retirement savings to allow for withdrawals before the traditional retirement age. Funding your lifestyle during those sabbatical periods will be pushed to the forefront of financial planning as lifestyles evolve. “Retirement is being shaped and retooled to fit the needs of each generation. This is how it has always been,” Barzideh said. “The current generation has different aspirations and values than prior ones. The current younger generation tends to be more educated and aware of world events.” “More altruistic, socially conscious, with a greater need for freedom of time to pursue fulfilling endeavors – most emotionally fulfilling, not necessarily the most profitable ones.”