More baby boomers are planning to work past age 65 than any previous generation, according to a recent survey by the AARP. For the past several years, I have been researching trends in retirement for an upcoming book. I even "retired" myself for two years (98-99) into a retirement community in Florida to further research retirement firsthand. Based on this research, I predict that we will see major changes in retirement in the near future.
One change will be large number of seniors working past the traditional retirement age of 65. This will occur for three reasons.
1. Necessity
2. Choice
3. Rapidly increasing longevity
NECESSITY
According to a Merrill Lynch survey, 65 percent of the nation's 76 million baby boomers will not have sufficient funds to retire at age 65. That's 49 million people! Other studies show that millions of these boomers currently have less than one year's salary in retirement funds.
In order to have a retirement income of 70 percent of pre-retirement salary, financial planners recommend accumulating a retirement fund of 15 to 20 times salary at retirement. Based on that standard, millions of baby boomers will NEVER be able to afford to retire.
These unfortunate seniors will have work until they die or until poor health eventually forces them into substandard retirement. This won't affect thousands or tens of thousands of people, but millions of 65-year-olds. The impact on Medicare will be staggering, forcing major changes in benefits. Likely changes include higher co-payments or insurance costs, resulting in an even bigger drain on limited retirement funds.
CHOICE
There are three major reasons why a person might choose to work past age 65. The first -- insufficient funds to retire -- has already been discussed.
Another reason is the desire to continue doing meaningful, enjoyable work. A lucky minority of 65-year-olds will fall into this category and continue to work at what they love to do. With good health, they could easily work into their eighties or nineties.
The final, darker reason why some would choose to work past age 65 is that they have no life outside work. They must continue to work because without work they would have no life, no hobbies, no friends.... and no money. They are too frightened to admit it, so they just respond to surveys that they plan to work past 65.
These people need to get a clue -- and fast. Take it from my firsthand observations; nothing is sadder than seeing new retirees who are lost in a sea of people in a retirement community. They never learned how to make new friends; they never developed hobbies or did anything new. These seniors subconsciously equate retirement to dying so they fear it. In their frame of reference, they are right. Retirement can be a slow death if you don't plan ahead to handle the stress brought on by the many changes one must face in retirement.
INCREASING LONGEVITY
Medical breakthroughs -- some of which have already occurred, but haven't yet become mainstream -- will greatly increase life expectancy for baby boomers. The first baby boomer will turn 65 in 2011 and the last boomer in 2026. Just imagine how much medicine could advance by 2026. For example, a quarter of a century ago, heart bypasses were rare. Today, they are commonplace, even for seniors well into their eighties.
It is very likely that this trend will become more evident as baby boomers begin to reach age 65. Thus, more 65-year-olds will realize that they have to work past age 65 in order to stretch their limited retirement funds for their increased life expectancy.
According to the American Academy of Anti-Aging Medicine, 50 percent of baby boomers will probably live to age 100. That's 15 to 20 years longer than actuaries -- those who forecast life expectancy for insurance and pension companies -- are predicting. Who's right?
Actually, both could be right. Actuaries use historical data only. That is, they look at death rates in the past. As a result, the effects of major medical advances might not be evident until years after they occur.
Granted, that's a bit oversimplified, but it is accurate to say that current life expectancy calculations don't consider any pending advances in medicine, medical treatments, medications, anti-aging, cloning, biotechnology, nanotechnology, or other promising fields.
Less than 10 years ago, cloning was farfetched --pure science fiction out of Jurassic Park. Today, animals have been cloned. Humans are in the process of being cloned. One research group is attempting to clone a wooly mammoth, extinct for 10,000 years. Who can say what will be possible in another 25 years?
As the trend towards increasing longevity finally becomes evident to the public, retirement and retirement planning will change dramatically. The financial planning profession will adapt to the new realities of retirement. Businesses will scurry to accommodate boomers who have become accustomed to an affluent lifestyle but are unable to retire.
Retirees will no longer just retire; I have identified seven distinct stages of retirement that will affect most retirees.
Some retirees will work full time. Some will relocate and then work part-time from their retirement communities. Businesses will recognize the wealth of knowledge and experience available from retirees. Retirees will work from retirement communities in Florida via computer video-link with fellow coworkers in New York. The lines between retirement and employment will blur as some retirees go from their current employment to full-time remote video-links to part-time jobs to occasional consulting.
As our society transitions to this new retirement, good health will become increasingly important. It's one thing to be in poor health and then die a couple of years later. It is entirely another to live two to three decades in poor health. Not only does quality of life decline, the financial cost can be enormous.
On the bright side, some seniors will survive previously terminal illnesses to lead long and active lives.
On the dark side, some retirees will survive but in a greatly reduced state of well-being. Some unfortunate seniors will go through decades of declining health -- from one surgery to another -- like a flat stone skipping across a pond of morbidity (very poor health). The cost will be staggering to society and to the senior's family.
Nationally, nursing homes cost an average of $50,000 a year. The average stay is two years. What will happen when medical advances keep these frail seniors alive in nursing homes for ten years? Twenty years? The cost would destroy the retirement funds of a surviving spouse and decimate the estates of all but multimillionaires.
WILL YOU BE ABLE TO WORK PAST 65?
Since many baby boomers will have saved less than one year's salary by age 65, their greatest asset will be their ability to earn income by continuing to work. Most will be at their highest salaries of their careers. A few more years of work could make a substantial difference in their retirement funds, but will their health allow them to work? It's not just a matter of avoiding illness. Some retirees that I interviewed had no illness to prevent working, but they said that they had lost the energy to work full-time. If you plan to supplement your retirement income by working past age 65, you need to be taking steps now to ensure your health is good enough to give you the option of working.
So, what can you do? Here are some steps you should take now.
Work with a good financial planner who understands these trends.
Act now to get into better health. You can't wait until you are 65. That's like waiting until your car has 100,000 miles before changing the oil regularly. Some damage will be done that you cannot correct. If you are not in reasonably good health, you may not be able to work beyond age 65 if it becomes necessary.
Exercise. Walk briskly for 30 minutes at least three times a week.
Manage your weight. According to recent reports, 61% of adults are overweight. Obesity is a major contributor to most senior illnesses, increasing the likelihood of major killers by 200% or more. Neglecting health and weight over the years is like taking an old Volkswagen with 100,000 miles on it and trying to tow a heavy trailer up a steep hill. That's a prescription for disaster.
Learn about anti-aging medicine. Anti-aging medicine -- the best-kept secret of senior athletes and celebrities -- hasn't yet reached the general public, but it is a rapidly growing field. The author of this article can personally attest to the benefits. He looks years younger than his age and is training for a marathon. One word of caution, anti-aging medicine is a new field and filled with outrageous claims. You need to find a reputable physician who understands anti-aging medicine and can prescribe an anti-aging regimen for you.
Plan ahead for retirement. Where will you live? What will you do? Can you make friends easily? If not, what will you do to build your new social circle? A circle of friends you can turn to for help can be a real comfort in retirement.
Plan for your post-retirement career. If you need to work after retirement to make ends meet, what would you like to do? Work can be very rewarding in retirement if it is fun and fulfilling. What skills do you need to do your dream work? Where can you get those skills?
One final suggestion: start now. You don't have to run a marathon. You just need to be healthier tomorrow than you are today. Do something today to be healthier and over time, the benefits will accumulate.
J. GRADY CASH, MEd, CFP is a former financial planner who took two years off to experience retirement firsthand. Cash is author of five financial books and has been called the "Father of Financial Wellness."
