A New Retirement “Model” for Mid-Life Professionals

You may recall that in my last blog, I wrote that some surveys conducted in recent years reported that the majority of Americans are not prepared for retirement(1). And I suggested that the reasons for this apparent lack of interest in the subject may not, in fact, reflect  lack of interest at all.

Instead, I suggested that the indifference was likely related to other factors, including the possibility that we, as a society, are thinking about retirement in the wrong way. The traditional notion of retirement – simply stop work at age 65 (or thereabouts) – might not be relevant to an increasingly large number of Americans.

In my last missive, I promised to provide a new context for retirement planning that would integrate more recent retirement trends (longer life expectancies and the desire to pursue meaningful work before retirement) into a framework that makes more sense for preparing for the next chapter in your life – financially and otherwise. A new approach may just be the tool that will help people become more interested in thinking about their long-term financial future!

In considering this “new retirement”, I have observed that more people now actually work during some of the years they are “retired”, which means they really have multiple “retirements”. The first one may include transitioning from your “traditional work” (whatever you have done for most of your professional life) to a new professional pursuit or even an entrepreneurial venture.

This shift could include consulting in your current field, pursuing a professional passion, or even working in a new occupation. Of course, for some, this stage of “retirement” may also include some pleasurable pursuits like golf, travel, gardening and/or other hobbies. These “extracurriculars” might (or might not) take up a greater percentage of your time than previously, but in this first stage of retirement, you are still involved with work, either because of financial considerations, your personal preference, or both.

Many people, even those who can afford to retire, want to remain active in their work and continue making professional contributions! But you might now want to work in a way that is different from what you did in the past – for example, professionals are increasingly making career choices that reflect both their professional passions and their personal values – even if it is the same field in which you have traditionally worked.

It is this deeper connection to work that can provide important psychological benefits during this first phase of retirement. In my opinion, these psychological and other non-financial considerations are just as important as considering your finances in making pre-retirement career choices. Professionals and entrepreneurs, particularly those in midlife, need to actually like their work!

Of course, the income you are continuing to generate during these years certainly provides another benefit which is to preserve (and potentially enhance) the financial resources you will need when you stop working. This may help mitigate one of today’s key retirement challenges which is also referred to as “longevity” risk – the possibility that you could run out of money during the years you are retired. For some of you, this period may last for 20 or 30 years, or even more.

The next phase of retirement – I refer to it as a “second” retirement – then includes the retirement we often think about – the time when we really have no earned income and are pursuing interests/activities not at all related to work.

This second phase of retirement also may eventually lead to the time when some of our physical capabilities begin to diminish and when we might not be able to live independently. There are many planning considerations for this phase, including the need to prepare for potentially higher medical costs and the additional expense of someone helping us with certain aspects of day-to-day living or even living in a nursing home.

You might want to use a “multi-phased” approach such as the one I have outlined as you think about your own circumstances and your planning. With the recent challenges in the economy, it might be wise to soon review your financial status and the timing of when you want to stop working (or when you think you will not be able to do so).

An effective review would involve estimating the income you will need when you stop working and determining whether you are on track to fund those future needs. However, if you wait too long to review your situation and you then learn you need to make adjustments, you might not have adequate time to improve the chances of meeting your goals.

If you need any help conducting such a review, I offer a complimentary consultation about your situation. Feel free to call me at (925) 301-4086 or email me at bill.pollak@lpl.com. Many people who have taken the time to develop a retirement plan often feel more confident about their financial future!

(1)       McKinsey Global Institute, November, 2008
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, please consult with your financial advisor prior to investing.

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