Traditionally, we are told that we need 75-80% of current gross income during our retirement years. This Baby Boom generation – that 77 million born between 1946 and 1964 – is changing tradition. The success or failure of their retirement experience will have profound implications for generations to come.
This new picture of retirement requires more self-sufficiency. Consumers are becoming more responsible for the success or failure of their own retirement. Future retirees will live a retirement quite different than their parents or grandparents. The role of the financial advisor will be to understand not only the financial, but the non-financial implications of retirement.
Advisors often talk about the different financial phases of life starting with accumulation and moving to income phase of retirement. The financial services industry should start to think of retirement not as a single event but one that begs the question “What is your client going to do for the next 20 or 30 or even forty years?” In his book “The Prosperous Retirement, Guide to the New Reality”, Michael Stein, CFP, describes three stages of retirement: the Go-Go, the Slow-Go and the No-Go.
Active retirement or the “Go-Go” stage is characterized by individuals who generally want to maintain their current life style. This is the group that does not consider themselves “old”. They are generally between ages 55 and 69. These retirees tend to be physically and mentally capable. This phase may not be much different than pre-retirement except that they want to slow down from a hectic life pace and buy that sports car, take that cruise and do all the things they haven’t had time to do before. These retirees generally spend more than their pre-retirement lifestyle budget. This group will also be more likely to continue working in some manner. .
The hardest task for the financial advisor during this phase is catching up with them to work on establishing a retirement cash flow plan. During this period, budgeting to curtail expenses may be required. We counsel them on how and when to receive retirement payments and the importance of health and long-term care insurance.
Passive retirement or the “Slow-Go” stage shift is usually brought on by the body saying “Slow Down”. Between the ages of 70 and 84, life settles into a routine. Retirees in this phase often shop for groceries on Monday, play golf on Wednesdays and eat out on Fridays. Often travel becomes more work that fun. People in this phase may sleep more and maybe start to experience certain loss of control of physical and mental functions. This more passive phase is marked by introspection. According to Stein, during this passive stage, the retiree’s budget requirement declines about 20 to 30%. Expenses for travel and recreation decrease, but medical expenses may rise. This is the stage when clients typically downsize their homes.
Planning priorities in this stage include legal documents such as General Power of Attorney, Medical Directives, Living Wills and Charitable Trusts. A well-planned strategy includes establishing a team consisting of an attorney, an accountant, investment advisors and perhaps a medical or geriatric care professional. The geriatric care professional’s skill set includes care-planning assessments, assistance with moving clients to or from a retirement complex and acting as a liaison to families at a distance. For more information on working with a geriatric care manager, visit the web site of the National Association of Professional Geriatric Care Managers at www.caremanager.org.
Final retirement or the “No-Go” stage occurs when the quiet pleasures give way to the realities of the final stage of retirement. A significant change in retirement lifestyle is generally brought on by a dramatic event such as the death of a spouse, substantial deterioration of personal well being or cognitive well being. Time and age have played a role in slowing down abilities and activities. Choices are limited.
By the time our clients reach this phase, if we have done an effective job as their consultants, our clients will realize their maximum benefit from their retirement income.
There is little doubt that retirement and investment planning strategies will continue to alter as the Boomer Generation retires. The process of retirement planning will become increasingly complex. Planning expertise will be in higher demand as this generation will have to be more self-reliant for their retirement income. As each generation lives longer, multiple generations exist side by side twisting traditionally one person retirement planning into “family” planning. The financial advisor will be looking at more than financial considerations. A strategy may see a significant draw-down of assets in the “Go-Go” stage followed by a reduced need in the “Slow-Go” phase. The final phase cash flow requirements may well be determined by how well health care and long-term care issues are funded.
