Baby Boomers are Redefining Retirement
How do you picture your retirement? Whether it’s more time with the grandkids, downsizing into a new home or buying into a continuing-care retirement community, or simply being free from debt and the demands of a full-time job, we all have our own unique vision of how to make the most of our golden years.
That being said, a dream without a plan is simply a wish; and the need for retirement planning has never been more critical than it is today.
The reality of retirement has undergone quite a radical transformation in recent times. As more and more Baby Boomers approach retirement age, they are finding that their circumstances are considerably different than those of their parents.
The tradition of lifelong commitment to one employer and earning your “gold watch retirement” is no longer the norm. Whereas long-time employees counted on a pension plan for the duration of their lifetime, today’s retirees depend on other sources of income. Concerns over the long-term viability of Medicare and Social Security have grown, and most retirees today understand that these services alone will not meet their needs in retirement.
Above all, Baby Boomers tend to pursue healthier, more active lifestyles and have access to more advanced medical technology than previous generations – empowering them to live longer than any other cohort in history.
Each of these factors requires careful consideration and detailed planning as you approach your retirement. With proper foresight and dedication, many of our clients have successfully adapted to the evolving landscape and are pursuing their dream retirement lifestyle on their own terms.
Here are three key areas where Baby Boomers are redefining retirement:
Baby Boomers are living longer than previous generations. While the U.S. population has doubled since 1950, the number of Americans aged 65 or older has quadrupled. The Census Bureau reported that 20% of U.S. residents are projected to be senior citizens by 2030, compared to 13% in 2010.
The time span for your retirement could be more than 20 years longer than that of your parents! Believe it or not, some people will spend as much time in retirement as they did in their careers. A 2018 report by Social Security Administration forecasts that 25% of Americans who reach age 65 will live until age 90.
Living longer is a beautiful thing, but it also presents new challenges. Most strikingly, Baby Boomers will have to stretch their personal assets much further to sustain their desired lifestyle. For this reason, creating and monitoring a detailed budget is essential.
Understanding the distinction between growth-oriented and income-generating investment strategies is also a key to successful cash flow planning during your retirement years.
Given the extended time horizon of retirement – and the desire for an active lifestyle – a growing number of Baby Boomers are taking up part-time jobs. Many retirees have found that a part-time job is a welcome addition to their retirement.
Whether out of boredom or necessity, millions of Baby Boomers are keeping their minds occupied, pursuing new fields that they find interesting and rewarding, and generating some extra income to preserve their financial stability.
Most Baby Boomers are no longer counting on pension plans, which have gradually become a thing of the past. Most private-sector retirees (and those who are self-employed) will not receive a monthly pension check to cover their living expenses; instead, they will rely on 401(k)s, IRAs and other personal assets they have amassed.
After employers started to move away from traditional pension plans in the 1970s, many employees have been diligent in contributing to other accounts; however, many workers have not contributed enough. Those who neglected to save adequate funds could run into dire financial straits during retirement. Seeking professional advice many years prior to retirement – during the accumulation phase – has become increasingly vital.
The restructuring of retirement income also requires a more advanced understanding of tax laws. As employees contributed to a traditional IRA or 401(k) plans, they received a deduction in taxable income; but when they start to withdraw income from retirement plans, the withdrawn amount becomes taxable as ordinary income for that year.
Planning for the impact of taxation on your nest egg has never been more integral to your financial success.
Retirees are grappling with the uncertain future of Medicare and Social Security, and many are realizing that these programs are not sufficient for a comfortable retirement.
The number one mistake we see with retired clients is failing to prepare for the skyrocketing cost of health care. Even though Medicare and Medicare supplements provide superior coverage, a Boston College study found that the average American household spends $197,000 in out-of-pocket health care costs during their retirement (not including services covered by Medicare or nursing home care).
The solvency of Medicare has also come into question over the past decade. The 2018 Medicare Trustees report indicates that the Medicare Part A trust fund is projected to be depleted by 2026. The shortfall could be corrected by a 0.82% increase in combined Medicare payroll taxes or an immediate 17% reduction in Medicare expenses – neither of which seem likely to occur in the foreseeable future.
To make matters worse, the long-term-care insurance market is not what it once was. Premiums have become unaffordable for many retired individuals and couples.
As a result, more seniors are realizing they may have to self-insure for long-term care costs with their own assets or buy into a continuing-care retirement community (where you are able to “lock in” your health care costs by purchasing an all-inclusive bundle that lasts a lifetime).
Social Security was designed to be supplemental income for retirement; however, many Americans are questioning whether this support system will remain effective and sustainable in the future.
The $2.89 trillion Social Security trust fund is being depleted for the first time since 1982, which is especially problematic when considering the rapidly increasing number of retired people. Today, there are 2.8 workers for every 1 Social Security beneficiary; the Social Security Trustees Report projects that there will be 2.2 workers for every beneficiary by 2035.
In addition, Social Security cost-of-living adjustments (COLAs) have failed to keep up with the true cost of living. According to The Senior Citizens League, Social Security benefits have lost 34% of their buying power between 2000 and 2018. During that timeframe, COLAs increased the average Social Security benefit by 46% (from $816 to $1,193), while average expenditures for retirees increased by 96%.
Long story short: it is a mistake to rely only on Medicare and Social Security to meet your health care and cash flow needs during retirement. Although the benefits will not dry up overnight, the long-term viability of the programs is questionable. Thus, creating a savings initiative that exclusively addresses your long-term care costs may be the best option for reducing risk and uncertainty in your future.
The changing paradigm of retirement is not only impacting Baby Boomers; it is also redefining how to plan for retirement and live life to the fullest for all generations – including Gen X and Millennials.
Creating the retirement of your dreams requires proper advance planning. That being said, it is never too late to seek advice and develop an organized, simplified plan for your future. We always welcome the opportunity to meet you and your family to help you through the process!