Industry Insights

The Evolution of Retirement Planning

Over the past two decades, planning for retirement has changed and requires a new level of planning and saving. Several factors have made the way you save your money different, from where you put it, to how much you need to save, and how long you will save for. While some of these changes may seem negative, they provide for a better quality of life and new freedoms throughout our retirement years.

Sixty-five was the number that symbolized retirement. This number came about as part of the original Social Security Act of 1935 setting age sixty-five as the minimum age to receive retirement benefits.  For generations, people were comfortable with a simple life after retirement, including becoming debt free, not buying extravagant things, and eventually handing down their wealth to their children. They showed qualities of frugality and content. Often the home they bought when they were young and starting a family would turn into their forever home. They typically began saving early on and stuck to a strict plan which included defined benefit pension plans and social security benefits.

While the need to save money for retirement hasn’t changed, the thought process has evolved. The internet era, the Great Recession, 2009 – present bull market, technology innovations, and increased life expectancies have led to a shifting mindset of what retirement really is. Instead of wanting to live comfortably after you stop working, people now want more and may not stop working altogether. European vacations, Caribbean cruises, the car of your dreams, and five-star restaurants are just a few of the things people desire throughout retirement. A higher percentage of dual income households make this dream easier to achieve. With this shift brings greater opportunities to save throughout one’s career. This means savings must be planned early in conjunction with investments and other cash flow building activities, alongside debt reduction.

With changing wants and needs, retirement is no longer an age but more so a shift toward creating new experiences with more work/life intertwinement; often a shift toward part time work or volunteering in the local community or abroad. People can expect to work longer since their quality of life is better and for many people this means 10-30 years of living beyond the prior generations’ Social Security imposed age. These extra years of work will help cover children’s educations and serve as extra saving years. Most people now contribute to their 401(k) to save for retirement. Working longer isn’t necessarily a bad thing, people have a different mindset on working beyond 65. It gives them purpose, social interaction, and a way to be productive. It’s more about the journey through retirement than the destination to retirement.

Although the need to invest for retirement has increased, it brings new adventures for the retired population that they didn’t once have. After a successful career, there is peace of mind in the thought that you can live comfortably, take vacations, have extra spending money for a new car or big purchase, and know your family will be taken care of. Retirement planning may sound stressful, but with the help of a financial advisor, it can be joyous and exciting with great results!

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