When you hear the word retirement, what do you think of? Retirement today means different things to different people. The whole concept of retirement is changing right in front of our eyes and continues to change faster than ever. As you plan for retirement, it is critically important that you are aware of the changing landscape of retirement.
Life expectancy and health
If you go back to 1900, retirement did not exist because you died before you got a chance to retire. In those days, life expectancy was about 48 years of age.
In contrast, 35 years ago we retired at 65 and statistically we lived to 72. Back then, we retired because we were old.
Today, the 65-year-old is younger and more active than ever. The 65-year-old has a good chance of living another 10, 15 even 25 years. Today, retirement really should be the beginning of something special … the best years of your life. Today, you should be planning for a retirement that is still active and fun.
Back in the 1980s, London Life created a brilliant advertising campaign that told Canadians that they did not need to wait till 65, instead you should aim for Freedom 55. Today, the average retirement age has dropped to about 61. Early retirement and longer life expectancy are making retirement one of the longest phases in our life. Not only do we need to ensure we have enough money to last over a longer period of time but we also need to make sure we keep busy and engaged day to day.
Work in retirement
Probably one of the biggest changes in retirement is it is no longer about not working. More and more Canadians are working beyond the age of 65. Studies also show that more and more retirees are going back to work after they retire. Some do it for the money but many do it for enjoyment. Others go back to work for other reasons such as having structure in a day, to be around people, to accomplish things and for a reason to get up in the morning. What we are discovering is work is really not bad, especially if we are able to work on our terms.
Interest rates and risk
Thirty years ago when you retired, you could invest your savings in guaranteed investments and live on the interest because you were getting double-digit returns with no risk. Since then, interest rates have dropped over 70 per cent and now, at guaranteed rates of four per cent, retirees will have a tougher time living on safe investments. Retirees today and in the future will struggle with the risk-and-return conundrum. On one hand, they want more safety, and on the other they need higher returns because they can’t live on four per cent.
If you think risk is not an issue, just go back to 2000 when the market dropped and stayed down for three years. The people who felt the pains the most were the retirees.
As baby boomers head into retirement, there is one thing for sure — the face of retirement will continue to change. The key to successful retirement is to keep an open mind and recognize that retirement is personal.
Retirement can be whatever you want it to be. Take the time to think about how retirement is changing and how these issues will affect you. Retirement planning requires thought not just about money and how much you need, but it is crucial to plan how you intend to use your time and how you are going to maintain active, healthy living.