by Mitch Anthony
Last month, we discussed how the retirement landscape has changed and what it means to your clients. This month, we’ll discuss the specifics of those realities starting with some new assumptions your clients will have to face:
- If a client has a pension, assume that benefit erosion will continue.
- Assume your client will work longer.
- Assume your client will live longer.
- Assume that there will be unplanned challenges, both financial and nonfinancial.
Here’s my definition of the Individual Retirement Attitude; feel free to use it with your clients: I can no longer assume that any institution has my best interests at heart, and I will assume total responsibility for my fiscal well-being. I will plan on not only living longer but working longer as well, and I will be highly selective about the work I choose. I will remain flexible in my approach, as I know there will be surprises and challenges in the journey ahead.
Assume Your Clients Will Work Longer
If indeed we buy into the idea that 65 is the new 55, or 45, or whatever chronological marker you choose, it also stands to reason that 65 would not necessarily be the date of extraction from the workforce. With ageist biases prevalent in many organizational settings, the pursuit and extension of work in your clients’ 60s and even early 70s will not be without its challenges. Maintaining relevance and up-to-speed aptitude in the modern workplace is essential.
Assume Your Clients Will Live Longer
How long should your clients plan on living? Should they consult an actuarial table or a longevity expert? I would recommend going with the expert—a recent study indicates that that expert is—your client!1 The study explores Subjective Life Expectancy (SLE), a model where “individuals take into account their own age-related actuarial probabilities of life expectancy, but also consider other autobiographical details including factors such as their parents’ longevity and their own lifestyles and health.” In other words, your clients know themselves better than anyone else. The research concluded that though the idea of SLE is a relatively new concept for research, there is enough evidence to conclude that self-estimates of life expectancy are reasonably accurate.
How long your clients expect to live has an important bearing on many of their “third stage of life” decisions—retirement being one of the first and foremost. Changes in Western societies demographically, economically, and socially have worked to form novel patterns for retirement. Staged or bridged retirements are becoming more common. Because of the confluence of increased longevity, the gradual eradication of mandatory retirement policies, and the macro shift toward personal financial responsibility in retirement, we will see these bridged retirements grow ever longer.
So based on their family DNA and their personal health habits/lifestyle, what is their best estimate for longevity? Their guess is as good as the actuarial experts. If your clients believe their expectancy to be 87, you (and they) can work backwards from that number with regard to both their financial and life satisfaction needs and begin to plot out an individual retirement path. SLE allows someone to design their own time frame for how they will transition through retirement, as well as how they will plan the distribution of their finances through the various stages, which one author described as go-go, slow-go, and no-go.
Have your clients ask themselves the following questions:
- How old do I feel versus my actual age?
- What is my optimum “work until” age?
- What has been my parents’/grandparents’ average longevity?
- How would I rate my dietary, physical fitness, and intellectual growth overall on a 1-10 scale?
From their answers to these questions, they can make a guesstimate at their own life expectancy. And keep in mind that how long they decide to work can have a bearing on this number as well. It would stand to reason that those who expect to live longer would also plan to retire later. A study by van Solinge and Henkens (2010) supported this assumption, showing that “Subjective Life Expectancy was a significant predictor of intended retirement age, even after controlling for important demographic factors such as gender, age, income, education, health, marital status, and family longevity.”2
Another study by von Bonsdoff, Shultz, Leskinen, and Tansky found that those who expect to live longer may feel that they have time to engage in both work and nonwork activities. These people tend to see death as a far-off event relative to others of the same age. Because of this, they aren’t ready to consider changing life priorities and retirement. They also concluded that those who have a high SLE are “likely to be contemplating a long retirement period with lots of opportunities for activity,” and consequently will sense the need to be engaged in paid work for a longer period in order to be able to pay for the retirement that they envision.3
On the flip side, those late career workers with a short SLE would be inclined to avoid considering negative information about the financial risks of early retirement and would opt to focus instead on activities like leisure and family togetherness. Either way, it is left to the individual.
The bottom line is that our mental/attitudinal approach is a significant factor in this stage of life. Research results indicate that late career workers and retirees have “developed a mental model of their own likely life expectancy, and this mental model influenced decisions that have important consequences both for their personal circumstances as well as for organizations managing projected skill shortages and for governments planning for the social security of older people.”4
As individuals, your clients are in charge of their own destinies more than they think. While there will always be unexpected, accidental, and unavoidable events, your clients are better off determining their own paths instead of leaving the journey to institutions.
Assume That There Will Be Improvisational Challenges
As stated earlier, because it takes time for people to adjust both psychologically and financially to full retirement, bridges or transitions in and out of work have become more common. Postretirement bridge employment has positive implications for those organizations that seek to maintain talent and knowledge. In addition to the obvious financial gains, as individuals, it also has physical and mental health benefits.
There are many already-retired persons who have returned to paid bridge employment. For over a decade there has been a growing body of research demonstrating that those who leave retirement to reenter the workforce have more positive attitudes to their preretirement work and are in better health. In other words, they feel healthy—both in body and spirit—and they know that by being engaged, they will extend that good health.
Chances are, if a client attempts full retirement, they won’t get it right the first time. It can take most people two to four attempts to find the exact balance of the vocation and vacation they are searching for. It also takes time to find the proper balance between spending and saving. More time in play equals more spent and less earned.
Not surprisingly, two of the chief financial motivators for people who are engaged in bridge employment in their 60s and 70s are (1) medical health insurance and (2) being able to continue contributing to a workplace retirement plan, both of which increase in importance as we age.5 When considering inflationary health coverage and health care costs, many of your clients may decide that it is worth working longer to maintain coverage. Many of them want to delay distributions of their 401(k) plans, and so they continue to work and build those assets.
In the long run there are two balances your clients are challenged with finding on an individual level: working and playing and spending and saving. Encourage them to engage in a practice run or two to find the balance they need. Retirement is no longer a cliff to jump from (which is why people wanted parachutes) but as an uncharted road where your clients will need to advance carefully and map out what they like and don’t like. There will be bridges in and out of employment, volunteer engagements, and more. They will be counting on you to help guide them on their journey.
Consequently modern retirement is a bit like an improvisational stage of life where the individual will be deciding to go in and out of work and other interests based on how they feel at the time and how well balanced their current lifestyle feels to them. “Have fun with it” are the words of one practice-run retiree in her 70s who decided to leave the corporate world behind in her late 50s, start her own retail business, and dabble in a number of different ventures.
As your clients age and meet the improvisational challenges of this stage of life, they will find many that have blazed the trail ahead of them saying that “It is more about attitude than anything else.” What is the healthiest outlook your clients can take into the next stage of life? The following are essential:
- I will be a driver and not a passenger. I will assume responsibility for my own well-being, financially and otherwise.
- I will respond instead of despond. I’m going to make the most of the situation I am in. If I need to go back to work, I’m going to look for work that has social and intellectual benefits.
- I will thrive, not just survive. With all the wisdom and experience I have gathered, I know what matters and what doesn’t. I will apply that wisdom and direct my efforts in the most meaningful ways possible.
Viktor Frankl once wrote about the relationship between “position” and “disposition” and how understanding this distinction can make a difference in one’s life. The difference, he taught, is that one state—position—is the situation we find ourselves in. We may not have planned it this way, but here we are. We now have a choice about how to respond to this position—disposition. Some choose to become bitter, dismayed, and angry that things didn’t go according to plan. Others choose to take a position to enjoy the adventure of it all, rise to the challenges, explore new avenues, and revel in the novelty of new paths. Frankl taught that “position taken” is far more important than the position you find yourself in at the moment. This, in a nutshell, is what attitude is all about: help your clients figure out what position they are in, and determine what position they will take!
1. Barbara Griffina, Beryl Hesketh, and Vanessa Lohaa, “The Influence of Subjective Life Expectancy on Retirement Transition and Planning: A Longitudinal Study,” Journal of Vocational Behavior 81, no. 2 (October 2012): 129-37. http://dx.doi.org/10.1016/j.jvb.2012.05.005.
2. Hanna van Solinge and Kène Henkens, “Living Longer, Working Longer? The Impact of Subjective Life Expectancy on Retirement Intentions and Behaviour.” European Journal of Public Health 20,no. 1 (October 12, 2009): 47-51. http://eurpub.oxfordjournals.org/content/20/1/47.abstract?sid=1510875d-0fc7-42f5-9482-e32c28790c2e.
3. M. E. von Bonsdorff, K. S. Shultz, E. Leskinen, & J. Tansky, “The Choice Between Retirement And Bridge Employment: A Continuity Theory and Life Course Perspective.” International Journal of Aging and Human Devleopment 69 (2009): 79-100.
4. B. Hesketh, B. Griffin, and V. Loh, “A Future-Oriented Retirement Transition Adjustment Framework.” Journal of Vocational Behavior 12 (2009).
5. “Aegon Retirement Readiness Survey 2012: The Changing Face of Retirement,” www.aegon.com/Documents/aegon-om/Sitewide/Retirement-Readiness-Survey/The-Changing-Face-of-Retirement-The-Workplace-Perspective.pdf?epslanguage=en.
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Adapted from The New Retirementality: Planning Your Life and Living Your Dreams…at Any Age You Want, Fourth Edition.
©2014 by Mitch Anthony. Published by John Wiley & Sons, Inc. Available in February 2014 at mitchanthony.com and booksellers nationwide.
© 2014 Mitch Anthony
Mitch Anthony is the founder and president of Advisor Insights Inc., the leading provider of financial life planning tools and programs.
For more than a decade, Mitch and his team have provided training and development for both individual advisors and major organizations throughout the world. Mitch personally consults with many of the largest and most-recognizable names in the financial services industry on both financial life planning and relationship development.
Mitch has been named one of the financial services industry’s top “Movers & Shakers” for his pioneering work, and is interviewed by the media on a regular basis. The Institute is partnering with both Texas Tech University and the University of Georgia to develop financial life planning programs for their undergraduate programs. Mitch is a popular keynote speaker, columnist for Financial Advisor magazine and Journal of Financial Planning, and host of the daily radio feature, The Daily Dose, heard on over 100 radio stations nationwide.
Mitch is also the author of many groundbreaking books for advisors and consumers, including perennial bestseller StorySelling for Financial Advisors, cited by “Financial Advisor” magazine as the number one “must-read” book for financial professionals. Mitch’s other books include From the Boiler Room to the Living Room, The New Retirementality, Your Clients for Life, Your Client’s Story, The Cash in the Hat, and The Bean is not Green. For information on these books and more resources, click here. Contact Mitch at [email protected].