Boomers are redefining retirement

By Don Kuehn

If you are 20-something, 30-something or something else, you probably don’t care much about the first of the baby boomers turning 60 this year. But this massive segment of our culture—some 77 million people born between 1946 and 1964—is changing the way we look at many issues, including how we approach retirement.

The dictionary defines retire as "to withdraw to a secluded place; to give up one’s work because of age; to withdraw from use."

Whether it's because corporations are abdicating their pension obligations (only about 18 percent of workers now have traditional pension plans, compared to more than 62 percent in the 1970s, according to the Employee Benefit Research Institute) or because of government policies or enlightened choice, boomer retirement is not a retreat from life but a head-on challenge to age and ageism.

A 2005 study by Merrill Lynch found that 76 percent of people ages 40 to 58 say they plan to work in retirement, and 56 percent say they want to do something completely different from their current job. These people are products of the post-World War II baby boom and they are shifting our perceptions about what it means to retire.

Fewer than a quarter of all retirees and pre-retirees see their retirement as the traditional "winding down." Most think it will be a time of renewal, a continuation of what they had been doing or a whole new life.

Ameriprise Financial, working with noted gerontologist Ken Dychtwald, Ph.D., identified five stages of retirement, which they call New Retirement Mindscape. They sampled 2,000 adults between ages 40 and 75 and identified five stages of thinking about what retirement is and can be. Here’s some of what they found:

Stage 1: Imagination. People in their 40s develop strong ideas about what their retirement is going to be like. As their vision becomes clearer, so does their optimism. Unfortunately, only 44 percent describe themselves as being "on track" to meet the financial needs of their imaginative plans. They still have high expectations of adventure and empowerment.

Stage 2: Anticipation. A growing excitement for freedom from work as they know it marks the five years before actual retirement. The big day is still quite a way off, but 80 percent of the respondents have generally positive emotions and believe they will be able to achieve their dreams for retirement.

Stage 3: Liberation. From the day of retirement through the year or so that follows is a time of great excitement, relief and enthusiasm when many people start new hobbies, travel or new ventures. Seventy-eight percent of the people said they were "enjoying retirement a great deal." But the authors suggest that this is like a honeymoon phase. After a while, a new reality begins to set in.

Stage 4: Reorientation. From two to 15 years after retirement, many people report a period of "emptiness" (49 percent), "worry" (38 percent) and "boredom" (34 percent). This is the point where, to varying degrees, an emotional letdown occurs. A Harris poll in 2002 identified four categories that fall within this age group:

• Empowered Reinventors (19 percent) are challenged by retirement, see it as an adventure (70 percent) and are empowered (56 percent). Almost half (43 percent) say doing more meaningful or satisfying work is important to them. These are not the retirees who sit home every day. They’re working at jobs they love.
• Carefree Contents (19 percent) want a traditional retirement focused on relaxation, travel and recreation. They have worked to achieve their happiness by saving and investing well and developing an overall financial strategy.
• Uncertain Searchers (22 percent) don’t know exactly what they want their retirement years to bring. Some are Live for Todays, as Harris calls them, who dream of having time to do all the things they didn’t have time for earlier, but worry that they will not have enough money to get them done. If they could do one thing over it would be to better prepare financially for retirement. Now that they are retired, they tend to feel overwhelmed by the amount of information available to them.
• Worried Strugglers (40 percent) are most likely to be in poor health, have saved the least, may be widowed and are most pessimistic. They are less likely to travel, visit family or participate in community events. They’re just trying to hang on.

Stage 5: Reconciliation. About 16 or more years after retirement comes a stage marked by increased contentment, acceptance and personal reflection. Generally, by this time people have come to grips with what retirement has to offer and accept what fate, or their good planning, have left them. Some 22 percent of the respondents, however, report feelings of sadness as they confront end-of-life issues.

For many of our parents, retirement was a lot like the moon-eyed bride-to-be who planned every detail of her wedding but never gave much thought to her marriage. Many in my parents’ generation were so focused on the day they'd take home the "gold watch" that they forgot to plan for the rest of their lives. And today, the rest of life is a long time.

The average life expectancy for a 60-year-old male boomer is 82, and it’s 85 for a woman of the same age. For a 65-year-old couple, there is a 1-in-4 chance that one of them will live to be 95.

The relative value of Social Security will continue to shrink as Medicare premiums go up, Part D (the prescription drug plan) is deducted from monthly benefit checks and inflation chips away at those dependable payments FDR promised back in the 1930s. This puts an even greater dependence on individual savings and investment.

The keys, as I have stressed so often in this space, include paying off debt, being mortgage-free before you retire, investing in workplace-based retirement plans—401(k) or 403(b)—to the fullest extent possible, and building a portfolio of investments outside of employer-sponsored plans by using IRAs and Roth IRAs concentrating on no-load mutual funds and index funds.

Want an easy solution to sorting through the maze of some 17,000 mutual funds in today’s market? Look for "target strategy" or " retirement strategy" funds that mature in the year in which you plan to retire. Major no-load fund companies like Fidelity (e.g. Freedom 2010), Vanguard (e.g. Target Retirement 2015) and T. Rowe Price (e.g. Retirement 2010) offer them.

These are cheap and efficient funds in which to invest because, in addition to very low expense ratios, they take the guesswork out of asset allocation and diversification. On a scale of "no-brainer" to "brainer," this is clearly a no-brainer. As you get older, the fund managers alter the mix between stocks and bonds so you improve the chances of reaching your retirement goals.

[For illustration purposes only, the T. Rowe Price Retirement 2010, 2020 and 2030 funds reported earnings last year of 6.8 percent, 7.8 percent and 8.9 percent, respectively. For the three-year period, they had annualized returns of 13.3 percent, 15.2 percent and 16.7 percent.

This is in line with their relative risk. Longer maturity funds can be aggressive with their investments and, therefore earn (or lose) at a slightly higher rate than more conservative funds. The closer to retirement, the more managers shift assets toward conservative choices.

At T. Rowe Price, for example, these targeted retirement funds start with an asset allocation of about 94 percent stocks and 6 percent bonds and gradually shift to a goal of 44 percent stocks and 56 percent bonds by maturity.]

Sooner or later, you are going to face retirement issues. Those who start planning early, who save for short-term goals and invest regularly for long-term goals, will find the greatest satisfaction when the big day arrives. Those who don’t … well, for them retirement will be either a short stop between jobs or the start of a holding pattern: staying at home and marking time.

Whether you are a boomer, a member of Gen X or Y, a hip-hopper or whatever comes next, you will benefit from the pioneering spirit of today’s retirees and pre-retirees who are making alternative retirement choices respectable. The Harris poll (2002) called them "ageless explorers" who want to avoid boredom, live life to the fullest and participate in various recreational, leisure and personal growth activities. For some, that may mean volunteering. For others, it will mean new jobs to make ends meet, to pay for health insurance or just to try something they’ve always wanted to do.

Don Kuehn is a retired AFT senior national representative. This column is intended to increase knowledge and awareness of issues of importance to members and retirees. For specific advice relative to your personal situation, consult competent legal, tax or financial counsel. Comments and questions can be sent to dkuehn60@yahoo.com.