One of the big goals most investors have for their portfolios is to fund their retirements. Sad to say, building a nest egg that's large enough to keep us secure in our old age is going to be a much heavier lift for today's workers than it was for our parents of grandparents.
It's harder, but not impossible, and with planning it can be achieved.
In this clip, Alison Southwick and Robert Brokamp discuss two of the five major ways that retirement planning has changed: First, they talk about the mostly good news regarding life expectancy trends, and then, the more ambivalent news about how long we're likely to be working before we get to retire and enjoy the fruits of our labors.
A transcript follows the video.
This podcast was recorded on June 21, 2016.
Alison Southwick: Let's get to some good news. Number four.
Robert Brokamp: Here is some good news, and that is we're just living longer.
Southwich: That's good news!
Brokamp: That is good news. So when you look back at, like, 1940, which is the year the first Social Security check was sent out -- and it was sent out for, like, $23 -- if you made it to 65, you could expect to live another 13 or 14 years. Now, if you make it to 65, you can expect to live another 20 or 21 years, and even longer if you're married, believe it or not.
Brokamp: Yeah. So people who make it to age 65 if they're a married couple -- it's about a 50/50 chance that one of them is going to make it to age 90. So that's great news. From a financial planning perspective, it means that that's a longer retirement. If you're going to try to retire at 62, but you're living longer and longer, that means you have to have saved a lot more while you're working.
Generally speaking, people haven't done that, so they need to work longer. That's not horrible, because you're going to live longer as well. This leads us to the fifth thing that we're going to see as a change. It's something that just recently started to shift, and that is the average retirement age will go up.
If you look at where it was in the year 1900, for example, the average retirement age is almost laughable. It was 76.
Brokamp: If you were born in that year, chances are you weren't going to make it until 50. If you made it to 65, you might make it another decade. So basically people really didn't retire ...
Southwick: Didn't retire.
Brokamp: So over the course of the 20th century, we decided to live longer. Well, we decided ...
Soutwick: I'm making this conscious choice.
Brokamp: Yes, a conscious choice to live longer. But we also retired sooner to where by the year 2000, the average retirement age was 62 or 63. And that's sort of an unsustainable formula where you work less and want to retire more, because it's asking more of your working years to save more and more, and we just haven't been able to do that.
So after the Great Recession, the retirement age, after declining for decades, finally ticked up, and that trend, I think, is going to continue to a point where, in the next 20 or 30 years, you're going to look at people mostly waiting until their 70s. They're going to be living longer, and that's not a horrible thing.
A study from the Center for Retirement Research found that for most people, about half would be retired at age 65 or going to have to cut back on their lifestyle. They don't have enough saved. However, if they just delay it to age 70, almost 90% of people will be fine. So a lot of this can be resolved by waiting until age 70.
Southwick: And perhaps a lot of people are working longer because they enjoy their work and they're physically able to keep working. That's good news. So this could be good news or bad news?
Brokamp: That's what a lot of the research is indicating. People are working later, but money isn't necessarily the No. 1 reason. And I think one of the big changes we'll see over coming decades is a whole different concept about what retirement is. Just tomorrow is the 12-year anniversary of the very first issue of Rule Your Retirement.
Southwick: Oh, congratulations!
Brokamp: And in that issue I interviewed a guy named Mitch Anthony, who wrote a book called The New Retirementality. He pointed out that we are a binge society. We binge on education in the beginning, then we binge on work for a few decades, and then we retire and binge on leisure.
And what you're going to see over the coming decades is there being more of a mix of that -- where people will go to college and start their careers. But then maybe they'll go back to school and work part-time. Might take a year or two off as a sabbatical. Maybe once they get to their older years, they'll do a phased retirement or seasonal work.
Consider where the life expectancies could be in the future. About a year ago, Time magazine had a cover with a picture of baby. The title was "This Baby Could Live to Be 142 Years Old." When you think of living that long, retiring at 62 just isn't sustainable.
I actually find that inspiring, and one of the big messages from people like Mitch Anthony, or a group called Age Wave that does a lot of great research about this, is that society is changing to a point where it is offering more opportunities for people who would be normally close to or in retirement to go back to school. To do different kinds of work.
Alison: But the bottom line about the new normal for retirement is it's good. Just plan for it. What do you think? How do you want to put a bow on this? Put a bow on this.
Robert: I really do think it's this. Rather than looking at work, work, work, work, work -- reach your early to mid-60s and then stop working -- ask yourself what it is you want to do with the rest of your life. Especially once your kids are in college and out of the house, you have more freedom. For many people that's their peak earning years, yet they don't have a lot of those financial responsibilities. They might have saved up a lot of money. It might even be in their 401(k). You can still use that money for education, or for doing something that's more rewarding for you rather than doing something that pays you the most money.