Retirement Planning

The Chapters of Retirement

The five phases of life after 50 & the considerations that accompany them.

 

The journey to and through retirement occurs gradually, like successive chapters in a book. Each chapter has its own things to consider.

 

Chapter 1 (the fifties). At this stage of life, retirement becomes less like a far-off dream and more like a forthcoming reality. You begin to think about when you can retire, and about taking the right steps to retire comfortably.

   

By one measure, men have their peak earning years in their mid-fifties. Data from the Federal Reserve Bank of New York shows the median male worker earning 127% of his initial salary at that time. The peak earning years for women are harder to statistically gauge, as some women leave the paid workforce for years-long intervals. In inflation-adjusted terms, earnings actually peak earlier in life. PayScale estimates that on average, pay growth for women flattens at age 39 (at a median salary of $60,000), and at age 48 for men (at a median salary of $95,000). So by the fifties, many people are receiving raises to keep up with the cost of living, but essentially earning the equivalent of what they made a decade or more ago.^1,2

 

During your fifties, you may contend with “lifestyle creep” – the phenomenon of your household expenses growing along with your pay raises. These increased expenses may include housing costs, education costs, healthcare costs, even eldercare costs. Despite these financial strains, the inflow of new money into retirement accounts must not cease; your retirement plan assets should not be drawn down through loans or withdrawn too early.

 

Chapter 2 (the early sixties). The anticipation builds at this point; you start to think about the process of retiring and the precise financial and lifestyle steps involved. You also begin to think about the near future – not only what you will do next, but how you will do it.

 

According to the Center for Retirement Research at Boston College, the average American man now retires at age 64, the average American woman at age 62. So the reality is that the early sixties coincide with retirement for many people. This reality is worth noting in light of the difference between Americans’ envisioned and actual retirement ages. Last April, a Gallup poll asked pre-retirees when they expected to leave the workforce: 37% saw themselves working past 65, 32% before 65, and 24% at 65. The same poll asked older, retired Americans when they had stopped working full-time, and 67% of those respondents said they had done so before 65.^3,4

 

You may have to act on your plans to volunteer or start an encore career earlier than you think. If you do not have a set plan for the next chapter, a phased retirement may give you more of an opportunity to determine one.

 

This is also a time to dial down risk in your portfolio, especially if a bear market occurs right before you retire. You have little time to recover from a downturn.

 

Chapter 3 (the start of retired life). The first year or so of retirement is akin to a “honeymoon phase” – you have the time and perhaps the money to pursue all kinds of dreams. The key is not to spend wildly. Lifestyle creep also affects new retirees; free time often means more chances to spend money.

 

The good news is that you may spend less than you think. Transportation, insurance, housing, clothing and food costs may all decline. The common view is that you will need to live on 80% of your end salary for a comfortable retirement, but in a 2014 T. Rowe Price survey of retirees, the average respondent was living on 66% of his or her pre-retirement income. Eighty-five percent of those retirees said they were maintaining their standard of living with less money.⁵

   

Chapter 4 (the mid-sixties through the late seventies). This is when some people get a little restless. It is also when some people find their retirement savings growing disturbingly smaller. You may get bored with all-leisure, all-the-time and want to volunteer or work on your own terms, health permitting. You may want to adjust your retirement income strategy or see if new streams of income can be arranged.

 

Chapter 5 (eighty & afterward). The last chapter of retirement is one frequently characterized by the sharing of legacies and life lessons, a new perspective on the process of living and aging, and deeper engagement (or reengagement) with children and grandchildren. This is also the time when you should think about your financial legacy, and review or update your estate plan so that when you leave this world, things are in good order and your wishes are followed.

 

Before and during your retirement, it is wise to keep in touch with a financial professional who can guide and consult you when questions about income, investments, wealth protection, and wealth transfer arise.

 

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Citations.

1 – marketwatch.com/story/peak-earnings-for-men-come-in-their-early-50s-2015-06-18 [6/18/15]

2 – fastcompany.com/3025564/how-to-be-a-success-at-everything/when-are-your-high-earning-years-how-much-you-should-make- [1/30/14]

3 – crr.bc.edu/briefs/the-average-retirement-age-an-update/ [3/15]

4 – gallup.com/poll/182939/americans-settling-older-retirement-age.aspx [4/29/15]

5 – news.investors.com/investing/073014-711065-people-adjust-to-lower-income-in-retirement.htm [7/30/14]

 

 

 

Working a little (or a lot) after 60 may become the norm.

Do we really want to retire at 65? Not according to the latest annual retirement survey from the Transamerica Center for Retirement Studies which gauges the outlook of American workers. It found that 51% of us plan to work part-time once retired. Moreover, 64% of workers 60 and older wanted to work at least a little after 65 and 18% had no intention of retiring.1

Are financial needs shaping these responses? Not entirely. While 61% of all those polled in the Transamerica survey cited income and employer-sponsored health benefits as major reasons to stay employed in the “third act” of life, 34% of respondents said they wanted to keep working because they enjoy their occupation or like the social and mental engagement of the workplace.1

It seems “retirement” and “work” are no longer mutually exclusive. Not all of us have sufficiently large retirement nest eggs, so we strive to stay employed – to let our savings compound a little more, and to leave us with fewer years of retirement to fund. We want to keep working into our mid-sixties because of two other realities as well. If you are a baby boomer and you retire before age 66 (or 67, in the case of those born 1960 and later), your monthly Social Security benefits will be smaller than if you had worked until full retirement age. Additionally, we can qualify for Medicare at age 65.2,3 We are sometimes cautioned that working too much in retirement may result in our Social Security benefits being taxed – but is there really such a thing as “too much” retirement income? Income aside, there is another question we all face as retirement approaches.

How much control will we have over our retirement transition? In the Transamerica survey, 41% of respondents saw themselves making a gradual entry into retirement, shifting from fulltime employment to part-time employment or another kind of work in their sixties.1 Is that thinking realistic? It may or may not be. A recent Gallup survey of retirees found that 67% had left the workforce before age 65; just 18% had managed to work longer. Recent research from the Employee Benefit Retirement Institute fielded roughly the same results: 14% of retirees kept working after 65 and about half had been forced to stop working earlier than they planned due to layoffs, health issues or eldercare responsibilities.3

If you do want to make a gradual retirement transition, what might help you do it? First of all, work on maintaining your health. The second priority: maintain and enhance your skill set, so that your prospects for employment in your sixties are not reduced by separation from the latest technologies. Keep networking. Think about Plan B: if you are unable to continue working in your chosen career even part-time, what prospects might you have for creating income through financial decisions, self-employment or in other lines of work? How can you reduce your monthly expenses?

Easing out of work & into retirement may be the new normal. Pessimistic analysts contend that many baby boomers will not be able to keep working past 65, no matter their aspirations. They may be wrong – just as this active, ambitious generation has changed America, it may also change the definition of retirement.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate.

Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.

This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty.

This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment. Citations. 1 – forbes.com/sites/laurashin/2015/05/05/why-the-new-retirement-involves-working-past-65/[5/5/15] 2 – ssa.gov/retire2/agereduction.htm [6/11/15] 3 – money.usnews.com/money/blogs/planning-to-retire/2015/05/22/how-to-pick-the-optimal-retirement-age [5/22/15]