Retirement Income Realities and Solutions

Aaron Lieberman |

The goal of traditional retirement planning has been to build a “nest egg” of personal savings and investments that will supplement Social Security and pension benefits. Together, these three sources of retirement income have long been referred to as the proverbial “three legged stool”—a solid and well-balanced foundation for building financial security in old age.

However, Social Security benefits are less generous than they once were, and the solvency of future benefits is in question. In addition, employers are also reducing retirement benefits and switching to pension plans that transfer accountability for investment selection and performance to employees. Because these two legs of the retirement income stool are shrinking, more responsibility for financial security has shifted to personal savings and investments. Nevertheless, for most pre-retirees, this third leg of the retirement income stool is seriously under funded as well.

Generational Viewpoints

What Is “Retirement”? is an extensive report based on a 2019 survey conducted by the Transamerica Center for Retirement Studies. It explores the meaning of retirement and examines the attitudes and behaviors of three generations currently represented in the workforce:

Baby Boomer: Born 1946–1964
Generation X: Born 1965–1978
Millennial: Born 1979–2000

Due to the evolution of the retirement landscape, workers of all ages are increasingly expected to self-fund a greater portion of their retirement income. In addition, they are expected to manage their own investments and associated risks. However, across generations, only 20 percent “strongly agree” and 34 percent “somewhat agree” that they are building a large enough retirement nest egg.

In terms of “greatest financial priority right now,” the percentage of workers who cited “saving for retirement” increased significantly with age: Millennials (9 percent), Generation X (24 percent), and Baby Boomers (38 percent). In addition, Millennials (the youngest cohort surveyed) also cited a cluster of competing financial priorities including “cover basic living expenses” (19 percent), “build savings” (17 percent), “pay off credit card debt” (16 percent), and “support children” (15 percent).

The authors of the study also cited “infrequency of conversations about retirement” as a major concern. They described this major life transition as “a family matter that calls for important conversations.” In fact, nearly one-third of Generation X (31 percent) and Baby Boomers (32 percent) reported “never” discussing the topic. Surprisingly, it was Millennials (21 percent) who were most likely to report “frequently” discussing savings, investing, and planning for retirement with family and friends.

A New Solution for a New Age

Workers of all ages need a new framework to guide their preparation for this stage of life. To add stability to the retirement income stool, this new model proposes adding a fourth leg comprised of income and benefits derived from post-retirement work. In this scenario, “retirees” will likely follow one or more of the following paths:

• Work longer and delay full retirement
• Work part-time or part-year
• Transition into new careers
• Phase out of current position rather than make an abrupt departure.

In addition to extra income, post-retirement work also provides non-financial benefits that most adults find liberating and compelling. That is because a growing majority don’t view retirement as a respite from work, but rather as an opportunity to explore new arenas, stretch their comfort zones, and engage in purposeful activities that contribute to their own life satisfaction and the well-being of others.

It Takes More than Money

In the past, the transition to retirement has been viewed solely as an economic event. As a result, the focus of retirement planning has always been on building a nest egg. In The Late-Start Investor, author John Wasik recommends discarding this obsolete view in favor of a “flexible life plan that provides for financial, vocational, physical, emotional, and spiritual needs.” He explains, “Unless you look at your future holistically, merely saving up a pile of money will be a meaningless act.”

Of course, financial security is extremely important, but wise retirement preparation emphasizes that financial planning alone will not guarantee a rich and rewarding life. In The Millionaire Mind, Thomas J. Stanley points out that the most satisfied wealthy people don’t just have financial goals, they also have life goals. In other words, they have clarity around what they want in life and use their wealth as a tool to support those values and priorities.

Therefore, the most important message to remember as you prepare for retirement is this: “It takes more than money.” Make sure that you not only consider how the transition to retirement will affect your life financially, but how it will influence all other areas of your life as well.

Reprinted by permission of Money Quotient, NP