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Envisioning your retirement
Envisioning your retirement
We are living longer than ever before and, as a result, financial health has never been more important. BeWell spoke with Steve Vernon, F.S.A., consulting research scholar in the financial security division of the Stanford Center on Longevity, about the questions we should all be asking ourselves as we prepare for retirement.
How do gains in longevity impact retirement?
You will need to plan for a retirement period that may be longer than the length of retirement time experienced by previous generations. A study from the Stanford Center on Longevity shows that the average length of retirement was 8 years for people who turned age 65 in 1950. Now, the average length of retirement is 19 years and climbing — more than twice as long.
People today are living longer and retiring earlier. Calculating this impact simplistically, if you retire for twice as long of a period, you would need at least twice as much money. However, you will actually need more than twice the money, since medical costs are far higher now compared to previous generations, and those costs are expected to continue climbing faster than the rate of overall inflation.
Should be we brace ourselves now to work longer [laughter]?
Yes! And that shouldn’t necessarily be viewed as a bad thing. We’re seeing evidence that people who remain engaged with life in their later years are healthier, more vital, keep their wits longer, and even live longer. There are various ways to be engaged with life: you can have hobbies and interests, be active with causes and volunteering, be engaged with your adult children and grandchildren… and still keep working.
The evidence is mixed about whether working causes you to be more vital in your later years or if the causation is the other way around: healthier people may be able to work longer. My own belief is that stimulating work can be good for your vitality, but it’s also possible that some kinds of work are damaging to your health in your later years.
We’re also seeing evidence that economies continuing to employ older citizens are healthier than economies with a greater number of early retirees. The general suggestion here is that a higher percentage of the population would continue to produce goods and services if the average retirement age was older.
Should we rethink the traditional career lifecycle?
Yes! Let me give you an interesting example. In some of my retirement planning workshops, I lead a two-step thought exercise. For the first step, imagine that medical science now enables you to live forever. What would retirement look like to a 65 year-old? Themes about renewal and new directions figure prominently in the discussions, which makes sense when you think about it. In this situation, most people couldn’t retire at age 65 because they just wouldn’t have enough money. Instead, they would need to keep working, most likely indefinitely. Would you still want to keep doing the same old job forever? For most people, the answer is no; they would rather pursue work that is different, interesting and more fulfilling at later ages.
The second step of the exercise is to imagine that your doctor tells you that you have a fatal disease and will die within a year. What would you do for that year? Most people say they would focus on spending meaningful time with their family and friends, and would only pursue activities with real meaning to them. They may even curtail seeing people who are not of genuine importance or regard. This thought exercise can give you valuable insight into how to spend your remaining years. It’s fun; try it with your spouse, close family and friends.
What is the difference between saving for retirement and planning for retirement?
Saving for retirement is crucial for a financially secure retirement, but there’s much more to decide, which is where good planning pays off.
Just from a financial perspective, you’ll need to decide how to use your savings to generate a retirement paycheck. When will you start Social Security? What kind of medical insurance do you need? Should you buy long-term care insurance? Taking a broader perspective: Where will you live? Will you stay in your current home or move? What will you do with your time? How can you improve your health? Thoughtful answers to these questions and more are all part of planning for retirement.
What is the most common financial mistake that pre-retirees make?
Pre-retirees don’t spend enough time planning. They just hope that life will turn out OK. But hope is not a good strategy! If you don’t plan, you just get the life that shows up, which may not be the life that you want.
Is there a small step we could take today to get on the right path?
Research at Stanford shows that people who make affirmations about important aspects and goals of their lives increase their odds of success. Tell yourself that you’re a responsible person who takes the time to properly plan for your future. Include your spouse or partner, if appropriate. This will start you on the path, and will help keep you on the path when you’re tempted to veer off course by life’s distractions.
What has surprised you most over the course of your career in finance?
I am struck by the importance of the non-financial aspects of retirement planning. What do you want to do with the rest of your life? Where do you want to live? With whom do you want to spend your time? Good answers to these questions will help guide you to make the right financial decisions.
Interview conducted by Julie Croteau and edited by Dorothy Ryan