Harkening back to the days of childhood (some 5 decades plus ago), there was a common theme among the families of our neighborhood. Our neighborhood was eclectic, including textile mill laborers, small business owners, school teachers and principals, salesmen in local stores, as well as managers and owners of textile mills. Parents ranged from high school dropouts to graduates of Duke University.
However, there was a common vision instilled by all of the families into their children for how a life was constructed. Attend school, get good grades, have a good career and family. Focus on working your way up through adulthood. Eventually collect your pension and enjoy many years of vacation, otherwise known as retirement.
Out With the Old, In With the New
The goal, the vision, for retirement now is very different. For many, the new goal is to find a job you love and continue working. According to a Gallup poll of 700+ adults, virtually 75% of Americans plan to continue working well past a traditional retirement age.1 Perhaps these changes are due to insufficient financial resources for a classic retirement.2 Some, like Walt Krakowiecki, have found retirement boring. Wanting to hang up a busy career at 60, Krakowiecki eventually took up acting because he wanted to be busier than he was in his more traditional retirement.3 These attitudes are hardly new as “Baby Boomers have re-written societal rules at every stage,” according to Catherine Collinson of Transamerica Center for Retirement Studies.4
A longer career, either full-time or part-time, meets a number of needs for generations from Baby Boomers to Millennials. For past generations, retirement was defined as a magic age, normally 65. Now, many individuals (though not nearly enough) realize that retirement is more defined either as a way of life or as a stream of income that will support a chosen way of life. Continuing to work past normal retirement helps to provide a productive way of life and it extends the time that the financial nest egg will last in the golden years. Choosing to work may also provide opportunities to travel to areas seemingly out of reach financially. One wild card in this process is, of course, medical needs of the individual and the cost of medical care.
The beauty of this new view of retirement is the flexibility provided. Retirement is no longer something imposed because someone reaches a specific age. Retirement is defined by the emotions, the health, and the will of individuals and families.
As we close this four part series, there are two items that should be noted before moving along next week.
First, there is an adage that should be abandoned. For many years, people accepted an equity/debt asset allocation model based upon the investors age. The concept was a person’s exposure to stocks should be “100 minus your age.” For example, a 40 year old saving for retirement should have approximately 60% of their assets in stocks or equity vehicles, but a 70 year old retiree should have 70% in fixed-income investments.
Erik Christman of Oxford Financial Partners writes, “With people retiring earlier and living longer than ever before, this myth is dangerous. Fact is, inflation is the greatest threat retirees face, and stocks have proven to be one of the best inflation hedges available. Most retirees need 70% or more in stocks.”5 While our belief is closer to that of Mr. Christman, we believe exact asset allocation decisions should be made individually with advice from a trusted financial professional.
Second, there are tax-free or tax-advantaged income sources available to supplement retirement income. Roth IRAs, as opposed to the traditional IRA, does not provide a tax deductible contribution, but the Roth IRA provides tax-free accumulation and tax-free withdrawal after age 59 1/2. Municipal bonds also provide a source of income free from federal taxation. Two other possible asset sources provide the possibility of tax-advantaged income in retirement are the cash value of life insurance policies and reverse mortgages. Both os these possibilities should be studied carefully in conjunction with a financial advisor. They work well for some families, but are not a financial fit for others.
Forge ahead into the future! Do not go timidly, but look expectantly for God has adventure prepared for His people who follow Him!
1 Mercado, Darla. Here’s the new retirement goal: Love your job and keep working. May 22, 2017. USA Today.
2 Vernon, Steve. It’s time for a new American retirement dream. May 31, 2017. CBS News.
3 Wells, Jane. The new retirement is … not to retire. March 21 2017. CNBC.
4 Dowd, Casey. What the ‘New Retirement’ Looks Like. August 25, 2016. FoxBusiness.
5 Forbes Finance Council. Seven Myths About Retirement Investing People Need To Ignore. June 7, 2017. Forbes.