Traditional retirement definitions have been eroding for years. People are working longer today, both by choice and necessity. Some trends are changing while others remain the same. How might this impact how you define retirement?
Most pension plans for employees have long since frozen. Those lucky enough to receive an income at retirement for years of service are limited. Federal pensions are still available to government workers but likely won’t meet total income needs. The rise of the Thrift savings plan has federal employees contributing more to their financial future. This mirrors what’s been taking place in companies for decades as employers encourage workers to invest in a 401k plan. All employees, regardless of their employer, are being asked to take an increasingly active role investing for retirement.
Employer retirement plans are helpful, though contributions are limited. Technology is accelerating and making investing on your own from a device accessible to all. The need to visit a traditional brick and mortar company with a minimum asset amount is no longer necessary. Investors may open an account, invest, and distribute proceeds all on their own from the comfort of their sofa. The power of information that was once held captive by institutions no longer exists.
This information is everywhere today and that can be overwhelming. Sifting through and applying the good stuff to your own circumstances and priorities is critical. Knowledge and expertise will continue to be the leading value proposition in financial planning. Selecting a financial professional and receiving customized advice influences your retirement readiness. Financial planning will continue to accelerate into the mainstream regardless of the amount of wealth an investor has.
Medical insurance remains the trickiest area to navigate with regards to retirement. Medicare tends to be the primary source of coverage beginning at age 65. I’ve seen this keep many professionals in jobs longer than they wished for. More portable insurance choices are available yet carry a high monthly cost when compared to an employer policy. As the workplace continues to evolve, I imagine we’ll see more individuals with portable insurance coverage. When coverage is not tethered to your employer, potential job changes become easier. This allows the investor to define a retirement timeline that matches their expectations.
Defining how you choose to spend your time is changing the retirement landscape. What was unthinkable years ago as retirement, working to and through your 60s, is commonplace today. Many find the idea of doing “nothing” uninspiring and boring. Working or volunteering in some capacity on a schedule you set can be rewarding on many levels. This provides purpose to your day and the necessary socialization to stay engaged and healthy.
What’s not changing
The need for monthly income to arrive when you choose to be work optional. That may be in your 40s or it may be in your 70s, it’s a personal question you answer. Investing and saving allows for essential and discretionary spending when you’re ready. Sustainability of these investments will be critical to enjoying what you have regardless of the amount. It may not be necessary to defer retirement to a later date or have a bazillion dollars set aside in advance. Many may find a reduced work schedule coupled with distributions from investments to be the sweet spot of happiness. This “test drive” may allow professionals to ease into a customized definition of retirement. Knowing this years in advance may remove the stress and anxiousness of when to begin.
As time passes, investments will need to hedge rising costs. Doing so allows for choices on what you do with what you have. This is the most fulfilling stage of life as you control both your time and monies.
Taxes will continue to play a central role in retirement. The code changes every several years and requires one to be flexible. One strategy to maximize future income is investing in various tax environments today. Having the ability to create income from your investments in pretax, after tax, and Roth settings allows more choices on how dollars are taxed.
Communication between family members on the topic of money is fraught with complexity. As aging takes place longer term, it’s been shown that cognitive decision-making declines. This presents challenges and opportunities on sharing goals and desires with the next generation. Another approach includes keeping financials and wishes private as prior generations have done. Communication or the lack of it impact real retirement and legacy outcomes.
If you are interested in learning more on what it may take to retire successfully and stay successfully retired as you define it, reach out below as we’d be happy to chat.
Advisory services through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and Flowerstone Financial are not affiliated.