The concept of retirement is embedded in our minds as the natural conclusion to a life of work. As standards shift and people become more productive while also living longer, however, the concept of retirement itself needs to be redefined and must also include significantly more planning than conventional wisdom might suggest.
This is according to a new column in The Street authored by financial advisor Jamie Ebersole. To get an idea of how retirement has changed, it’s first necessary to understand what defined it in the first place.
“Our concept of retirement is derived from a late-nineteenth-century model ascribed to Otto von Bismarck in Germany,” Ebersole writes. “As laborers reached the end of their productive years, governments started to develop pension systems to care for retirees and arbitrary ages were assigned for when people should retire. In Bismarck’s Germany, the first retirement age was set at 70 years old and later reduced to 65. Life expectancy at the time was closer to 45 years, so it was an easy way for politicians to win votes by creating a benefit that most would likely never collect.”
That is no longer the case. As medicine and technology advance, life expectancies have increased and the ability for more people to work into their later years has expanded along with them.
“Many retirees can expect a traditional retirement to last for 20 years or more, which for many is a quarter of their lifetime,” he says. “So, what’s a person to do when faced with this new uncertainty about this last quarter of their life, when it has already been broadly defined as “retirement” by external forces? The short answer: it will require a lot more planning than we may have considered in the past.”
Asking a series of in-depth questions reasonably early, and well before you approach retirement age, can be the first major step in retirement planning, he explains. This can include having an idea of what you want retirement to look like; how a spouse, partner or significant other will envision retirement; whether or not a new job/career or hobby will factor into much of your time; and shoring up your investments.
“We need to ask hard questions now, while we have time, mental capacity and flexibility to change things, so that we can have the best chance at a retirement that is successful,” Ebersole writes. “The great news is that every one of us gets to determine what ‘successful’ means.”
Read the column at The Street.