March 3, 2021
This is Not Your Grandparents’ Retirement: Baby Boomers are Re-writing the Rules
The concept of retirement is in the midst of an incredible transformation. The notion that retirement is a time to end one’s career and pursue a life of leisure is becoming increasingly anachronistic. As United States life expectancies have increased — from 55 in 1920, to 70 in 1960, to 79 today — the length of time people spend in “retirement” has also increased dramatically. Once attaining the age of 65, the additional life expectancy for men is 18 years and over 20 years for women. It is likely that near-term medical breakthroughs will further extend life expectancies and years spent in a post-employment existence. Not only are people living longer, but largely due to better medical treatment, disease prevention efforts, including smoking cessation, better nutrition and exercise regimens, they are living healthier in their later years.
Couple increased longevity with the fact that the huge Baby Boom generation (those born between 1946 and 1964) is ten years either side of the traditional 65-year-old retirement age, and we are in a full-blown retirement boom. Every day another 10,000 Americans retire, adding to the approximately 70 million US retirees today. That is over twenty-one percent of the US population. This number is expected to grow to over 82 million by 2040. This phenomenon of aging Baby Boomers and increasing life expectancies is occurring all over the world. Longer and healthier lives, and this shifting age demography, have created a revolutionary age wave which has the potential to change everything we have come to expect from retirement.
The good news for many in this cohort is that while Americans over the age of 65 represent seventeen percent of the population, they control thirty-eight percent of the US net wealth. Those 50 and over control seventy-six percent of the net wealth of US households. Boomers alone, currently 57 to 75 years-old, control fifty-four percent of total wealth and make up more than fifty-six percent of the US households with over $1 million in assets (not counting primary residences).
We must acknowledge that while many Boomers are doing quite well, many are not, which is reflected in the quite sizable difference between the median (just over $200,000) and average ($1.2 million) household net worth of Boomers. Clearly, the extraordinary wealth of a small percentage of Boomers skews the average to the upside and threatens to obscure the fact that half of those in this generation have a worth of $200,000 or less. Our readers (and clients of Greenleaf Trust) generally fit in the more fortunate category, and the balance of this article is intended for that readership, recognizing that while financial resources are not determinative of enjoyment of life in retirement, they do, to a large degree, enable it.
The challenge for many well-heeled retirees and those entering this phase of life over the next number of years then becomes how to add life to those increasing years. Clearly, one size does not fit all and no two retirements will be alike. The varied life experiences retirees bring to this phase of life contribute to the varied ways in which retirees will experience aging and retirement. Given the ever-growing length of time people are spending in “retirement,” retirees day-to-day existences are often quite different. A typical day-in-the-life of a 62-year-old and a 92-year-old are not likely the same. There are however some commonalities which allow us to focus on those areas that most retirees will experience at some point in their retirements. While each of these facets will evolve and take on more or less importance as retirees move through the retirement journey, most all will be faced at some point with decisions around work, free time, staying healthy, family relationships, living arrangements, how to finance a lengthy retirement and purpose. So, let’s take a look at each of these facets and how today’s retirees are both experiencing them and changing them.
Less than 100 years ago, in the 1930s, the life expectancy was 62 and the average retirement age was 72. People often did not live long enough to retire, or if they did, it was for only a handful of years. From 1930 to 1990, the average retirement age gradually but steadily fell to 63 where it stayed for the next 20 years. Throughout many of those 20 years, retirees had company pensions to rely on, social security benefits were increasing and many people viewed a financially secure retirement as an entitlement. An early retirement was often thought to reflect a measure of success. Today, with people living much longer and company pensions having largely disappeared, seventy percent of Baby Boomers expect to work past age 65, or are already doing so, or do not plan to retire. Many will continue to work out of economic necessity, with longer lifespans leading to the need to fund longer retirements. Many Boomers find that their 401(k)s and personal savings are insufficient, absent company pensions, to fund their desired lifestyles. However, many are choosing to work for non-financial reasons, including the desire to stay mentally sharp, challenge oneself, stay physically active, maintain social connections and avoid boredom. Those working are often doing work quite different than what they did in their more traditional career. Many are starting their own businesses focusing on applying their skills in new ways. Others find fulfillment in mentoring younger colleagues in roles that can often be done part time. Often times retirees “return to work” after taking a couple years off and perhaps clarifying what they want to do going forward. Those with in-demand skills and talents are not having too much difficulty finding places to use them as the Boomer retirement wave has left a talent void in the workforce.
Many Boomers’ identities, during their working years, were tied up in their employment and they defined themselves by their titles or professions. They also spent a tremendous amount of time at work, left days of vacation on the table, and when they did take vacation still checked emails on a regular basis. Boomers are largely responsible for America’s reputation as a “no-vacation nation.” Once Boomers leave the workforce, the shift from being time constrained to time affluent is profound. Retirees aged 65 and over have, on average, 7.4 hours of leisure time per day. This is almost double the amount of leisure time as those aged 35-44. Over a 20-year retirement, the average Boomer will have over 54,000 hours of leisure time to fill. Many retirees have no idea what do with all of this free time and struggle to fill their daily dance cards. Those with the means to enjoy these hours recognize this asset as something to manage and enjoy and not squander. In fact, those who have spent time envisioning, planning and preparing for how to spend their new free time are far more likely to say retirement is fun and enjoyable. A whole industry has grown up around this retirement leisure economy, helping retirees fill those hours and collecting the billions of dollars spent annually on these pursuits. Leisure, and the experiences around it, often replaces work as central to people’s identity, with many retirees seeking unique or peak experiences that give them lasting memories.
Boomers, on the whole, are more health conscious than previous generations and, due to better diets, exercise regimens and medical advancements, can look forward to longer and healthier retirements. When surveyed, retirees will say that good health is the key ingredient to a happy retirement. Financial security is a distant second. The two are interconnected though with the wealthy being able to spend more on the pursuit of good health. Many older retirees are more concerned with living too long in poor health than dying too young. As life expectancies (pre-pandemic) have increased, the focus for many has shifted from increasing lifespans to increasing healthspans—the amount of time people live in full health without debilitating injuries or illnesses. Those who stay healthy in their advancing years are typically those who, in addition to having won the genetic lottery, stay physically active, have healthy sleep habits, have some routine in their lives, have strong friendships or social connections and have purpose in their lives.
Family is the greatest source of satisfaction in older people’s lives. Ask a retiree today what they miss most about their pre-pandemic lives and almost all of them will mention children and especially grandchildren. Ninety percent of those over age 65 have at least one grandchild and eight of ten grandparents call grandchildren a top priority in their lives. Longer lives have produced more and more four and five generation families. Boomers, who in most cases are the most financially secure, are often caught between caring for older parents and supporting children, grandchildren and even great grandchildren. Increased longevity means that Boomer grandparents will often be in their grandchildrens’ lives for 30 years or more. In many families, grandparenting is taking on even more importance, as parents for a number of reasons are out of the picture, and children are being raised exclusively by their grandparents. Another growing phenomenon is that more and more families are becoming matriarchal as women’s lifespans continue to dramatically outpace men’s. Blended families are also growing, as are households containing at least two generations of adults. Virtually all of these realities of family life today are new and have not been experienced by previous generations.
Retirees today enjoy more mobility than previous generations of retirees. Whether it is recent retirees moving to warmer climates and/or income tax-friendly states, or older retirees moving back to be closer to family and the care and comfort they seek in their later years, many retirees (especially those with the means to do so) are on the move. Over the last few years top destinations for those 60 and over have unsurprisingly been Florida, Arizona and the Carolinas. Florida, of course has the continent’s warmest winters and no state income tax. As retirees age, health and home are often closely intertwined and their second retirement move is often to children’s homes or assisted living facilities. Other trends worth watching, some of which have been altered by COVID-19, are retirees choosing to sell homes and rent in retirement meccas or in urban environments, and Americans moving abroad. Another recent innovation, largely driven by the increasingly long arc of retirement and multigenerational households, is the “two houses in one concept.” Some large national home builders are offering new homes specifically built to accommodate two or more generations of adults living under the same roof with distinct living areas for each. Accessory Dwelling Units, or small-scale apartments that can be built or installed adjacent to an existing home to house family members who may need care but still crave independence, are gaining interest. Many think of retirement as a time to downsize homes often driven by financial considerations, but among higher-net-worth retirees, half actually upsize or intend to do so. That decision is usually driven by the desire to have more room for visits by children and grandchildren or simply to have features that they have always wanted and now can afford and have time to enjoy fully.
As stated above, wealth inequality in America is real with over half of those over age 60 feeling that their retirement savings are not on track. The average 60-year-old pre-retiree has saved only about $135,000 for retirement. Those who study these things believe that half of working households will be unable to maintain their standard of living in retirement. Even for those with sizable invested assets, savings and net worth, financing a comfortable and lengthy retirement is often a real concern. For many, retirement is the biggest purchase of a lifetime, so anxiety about “getting it right” is often quite high. This is where the assistance of a good financial advisor can really help. At Greenleaf Trust we recognize that a successful financial plan begins with a solid understanding of a client’s goals and objectives—priorities that run much deeper than investment returns and appropriate asset allocations. What matters most to one client in retirement may hold little importance to another. The holistic and comprehensive wealth management plan we prepare for prospective clients, before our engagement even begins, is customized to reflect not only financial goals but personal values and goals. As we help clients navigate the retirement journey we typically address many client needs across a spectrum we refer to as “Continuity of Client Care.” Such needs include specific planning around the broad categories of cash flow planning, insurance planning, investment planning, education planning, retirement planning (including funding strategies and sources and social security optimization), income tax planning, estate planning, philanthropic planning and financial coaching. Ongoing meetings with clients often focus on changes in course and plan adjustments stemming from the inevitable life changes clients experience over two, three or more decades of retirement.
Retirees with a strong sense of purpose are, as you would expect, generally more active, healthier and happier—and they live longer. Many retirees, beneficiaries of the time affluence discussed above, develop a new and stronger sense of purpose than when they were younger and focused on careers and dependent children. Others struggle to find a sense of purpose in a post-employment world. At its extreme, this struggle can become debilitating and lead to depression. Purpose in retirement is entirely personal and can be found in any number of ways, including taking care of elderly parents, spending more time with children or grandchildren, learning and doing new things and staying healthy and volunteering. There is no shortage of opportunities for retirees to engage with charities to both give (time and/or money) to those in need and to make strong social connections with like-minded people. Many retirees have talents and experience which are invaluable to under-resourced charitable organizations. Finding a sense of purpose around volunteering one’s time is a win-win for retirees and their communities.
Baby Boomers have re-written societal rules at every stage of their lives. In their final act, they will continue to re-write the rules. With retirees no longer viewing retirement as the finish line, but rather as an opportunity for new beginnings and an entirely new state of mind, it will be fascinating to both watch, and participate in, the evolution of retirement as the massive Baby Boom generation occupies that space over the next 30 to 40 years.
Many of the statistics and broad strokes in this short article are taken from the excellent, and heavily footnoted new book, What Retirees Want, by Ken Dychtwald and Robert Morrison. Written for both retirees or soon to be retirees and for those who serve the retired population, it is an insightful and fascinating read. I highly recommend it.