Longer life spans redefine retirement

At the turn of the 20th century, the average life expectancy was 47 years. Today, the average American will live approximately 77 years. The trend is expected to continue and by 2040, among individuals who reach age 65, average life expectancy is projected to rise from 81 to 85 for men and from 84 to 88 for women, according to the National Center for Health Statistics.

Simultaneously, as we are enjoying medical advances and living healthier lifestyles that are contributing to these longer life spans, the largest portion of our population is nearing retirement. In fact, this year, 78 million baby boomers are between the ages of 41 and 59. At the end of 2005, the oldest baby boomers will begin turning 60 years old, and this group is starting a new trend – seeing retirement as a new beginning rather than an end.

This generation of baby boomers will help redefine how our society thinks of its retirement years. The aging of America and these demographic changes are causing an “age wave,” which will transform every aspect of our personal, social, financial and political lives, according to Dr. Ken Dychtwald, psychologist and gerontologist.

But we should not expect people to enter into a 30-year retirement in the traditional sense of the word. According to Dychtwald, longer, healthier lives mean new definitions of the life cycles. No longer are people expected to first go through education, then work and then retirement.

Now, the opportunities to continue working or to go back to school do not end with retirement as they usually did in the past. The old, linear life model is being replaced with a cyclical approach, including short-term retirements followed by any combination of career shifts, part- or flex-time work, entrepreneurial endeavors and continuing education. In fact, about 30 percent of people older than 65 are currently in the labor force, and that percentage is expected to increase to 37 percent by 2015, according to the Bureau of Labor Statistics in 2000.

These statistics support the belief that as boomers pass through their middle years and maturity, some key factors are reshaping how they live:

• Concern about the onset of chronic disease and the desire to do whatever is possible to postpone physical aging;

• Entry into new adult life stages including empty-nesting, caregiving, widowhood and retirement – each with its own challenges and opportunities; and

• A psychological shift from acquiring more material possessions toward a desire to pursue enjoyable and satisfying experiences.

Furthermore, one of the greatest challenges that baby boomers will face as they turn the corner into their retirement years is stretching their finances to accommodate their longer lifespan. According to an AARP study, 25 million, or nearly one third, of baby boomers have virtually nothing saved for retirement.

Boomer solutions

What can boomers do in their 40s and 50s to best prepare financially for this new definition of retirement and the numerous lifestyle changes that lie ahead?

Create or update your financial plan. Seek the help of a qualified financial adviser to create a roadmap for your future. If you have a plan, be sure to update it and adjust it frequently to assure you remain on track with changing plans and goals. Web sites that offer a variety of planning resources include www.aarp.com, www.getadvice.com and many others.

Save, save, save. Even if it’s late in the game, take control and get started now. Less than 50 percent of working Americans have a pension plan at their workplace, according to AARP. That means less than half of all private-sector workers have a regular payroll deduction mechanism to save for their future.

Don’t ignore the rising costs of health care. For many, health care costs are increasing by double digits annually and insurers are reducing offerings, raising prices and shifting costs. In addition, many employers are cutting back on employee health benefits and retiree health benefits. According to AARP, retirees are paying larger and larger portions of their post-work income for health care. Even with Medicare eligibility, the average older American is spending nearly one third of income on health care.

Now is the perfect time for people nearing retirement (and those who want to get started early) to visit with a qualified financial adviser.

An adviser can help with potential solutions to the issues many boomers will face. For example, long-term-care insurance can help cover the high cost of nursing home care, and retirement plan catch-up contributions can boost savings for those age 50 and older.

Retirement is being redefined and the time is now for investors to redefine their plans for paying for retirement as well.

Paula Dougherty, CFP, ChFC, CLU, MBA is a Certified Financial Planner with American Express Financial Advisors Inc. American Express Financial Advisors Inc. Member NASD. American Express Co. is separate from American Express Financial Advisors Inc. and is not a broker-dealer.