For many, retirement represents a joyous and relaxing time, when the kids are off on their own and you finally have enough saved to quit your day job and blaze a trail on your own terms. Perhaps you'll return to an old hobby, spend more time with family, discover a new passion, sip lattes at the cafe, travel, and sleep late. Sign me up!
But is this how retirees really spend their time? How happy are they truly? What should you expect in retirement? JPMorgan Chase studied the current retirement landscape and published several key insights that can help us better answer these questions and prepare accordingly. Here's what retirement really looks like and what you can expect to do in your life's final act.
Longer life expectancy
No surprise here -- people are living longer than ever before. The first table shows two trends: First, life expectancy is expected to increase over time, and second, women are still expected to live longer than men, but the gap is shrinking.
While the mid-eighties is average, there's a good chance of making it to 90. For a 65-year-old woman today, there is a 33% chance of living to 90, and a 22% chance for a 65-year-old man. For couples, there's a 48% chance one of them will live to 90 and a 20% chance one will make it to 95.
What does all this mean for your retirement? For starters, plan for quite a long one -- possibly another 30 years. This may mean working longer while you're able to, in order to save for your more distant future when you've fully retired.
It can also mean investing with a longer time horizon. Retirees are usually more conservative with their assets, so they don't lose money in the stock market, but being too conservative may mean your nest egg doesn't keep up with inflation and the rising cost of living. If the cost of goods and services increases by 3% per year, the rule of 72 says our costs will double in 24 years -- something to consider if your retirement lasts 30 years.
Wanting to work, but not as long as hoped
According to the JPMorgan study, more people are working longer for a variety of reasons, like needing to make ends meet, staying covered under health insurance, and actually wanting to work. The good news: Most respondents said they work longer because they want to, not because they have to.
The overwhelming majority of respondents -- 64% of the retirees surveyed -- said they worked because they wanted to stay active and involved. The second most-common reason respondents gave for working longer was because they enjoyed it.
For those planning to work longer though, the reality may be different. Almost half of those interviewed said they didn't work as long as they had hoped to. The reasons were predominately health related, with many citing medical problems or a disability. The second most common reason for not working longer was a change at the employer, including downsizing or closing. It's crucial to have a contingency plan if you can't work as long as you initially planned. Also, pre-retirees should ensure they have adequate disability insurance in case illness or injury prevents them from working long enough to make ends meet in retirement.
Preparing for the next phase
Like any new phase in life, retiring presents challenges and opportunities. Shuffling off into retirement without a plan means you run the risk of becoming bored or unfulfilled.
It's best to start thinking now on how to spend all that free time. I had a client who worked for an investment bank for 30 years, retired, and then went back to work for a different bank after six months citing boredom. The JPMorgan study found that the amount of time retirees spent socializing, pursuing leisure activities, and exercising increased significantly in retirement.
You may want to explore the activities or hobbies you plan to engage in now to learn more about them. For instance, will financial outlays, like the cost to take classes or membership at a local country club, be prohibitive? The JPMorgan study recommends retirees "practice" retirement by exploring those activities now to see if they are a good fit.
Planning also includes understanding there are several phases of retirement. Those nearing retirement should think about a short-term plan, along with a longer-term plan that addresses the livability of their current housing situation, and the potential need for future health costs like long-term care.
For those anxious and uncertain about this next phase of life, a key insight from the study is that our level of happiness tends to increase as we age, and stress tends to decrease. So for middle-age folks who are burning the candle at both ends, just knowing that it gets better can help!
Timing Social Security
Put this all together and you can see the value of having and following a financial plan. With longer lifespans and retirements, you need a way to make sure your money outlasts you, and not the reverse. It's important that income planning doesn't rely solely upon continuing to work. Instead, think of work as part of a three-legged stool, with the other two legs being savings and Social Security benefits.
Social Security is usually a major slice of the retirement income pie, and so retirees should think carefully about their own claiming strategies. For instance, should you work longer to delay collecting your Social Security benefits to get bigger checks later on? Or perhaps you'll delay claiming until the maximum age of 70, instead withdrawing assets from your IRA and 401(k) to bridge the years before claiming. It will be specific to you and you'll need to do your research.
Health plays a part as well in Social Security claiming scenarios. If your family has a history of shorter lifespans, does this warrant claiming benefits earlier? Social Security is a complex system, and it's a crucial part of retirement income planning; spending time on this topic is worth it.
JPMorgan's study highlights the importance of retirement planning. By using interviews from current retirees, we gain valuable insights into what may lie ahead for us. For me, the discovery that happiness tends to increase as we age, and that stress decreases, is something hopeful to visualize while I do my diligent retirement planning.