Let's redefine what retirement means

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Retirement sure isn't what it used to be. Demographic trends and economic uncertainties are making the current definition obsolete for the next generation of "retirees." So, to plan more effectively for the last half of our lives, we need to embrace new ways of thinking about retirement that are supported by recent research, insights and economic realities.

Until recently, the conventional definition of retirement meant "not working" for an extended period at the end of your life -- a golden period during which you traveled, spent time with grandkids and pursued your hobbies and interests. Retirement was the answer for people who were tired of working or thought they were unable to work.

But this definition has some problems. First, people are living longer, healthier lives. During the 20th century, we added 30 years to our life expectancy. While that's a tremendous accomplishment for our society, it requires very high savings levels to accumulate enough money to enable us to "not work" for a very long time. As John Shoven, director of the Stanford Institute for Economic Policy Research and a Stanford economics professor, says, "It’s very expensive to fund a 25- to 30-year retirement over a 40-year career."

 The second problem is that evidence is accumulating that full retirement may not be the healthiest or most fulfilling way to spend your later years. Research has shown that people who work or volunteer in their later years are living longer and keeping their wits longer.

So, why are we trying so hard to "not work" for a long period in our lives when we're still physically able to?

Perhaps we should pay more attention to the goal expressed by Dr. Laura Carstensen, the founding director of the Stanford Center on Longevity, which looks for ways to lengthen the time we're physically fit, mentally sharp, functionally independent and financially secure. Given this insight, how might we think differently about our retirement years? 

Prior generations had a life cycle that could be generally broken into three stages:

  1. Childhood/education
  2. Career/raising family
  3. Leisure/retirement

Perhaps it’s more realistic and fulfilling to now blend and spread out these phases, so we might have more leisure before retirement, a lifelong commitment to education and longer periods of working.

When I tell people in their 40s and 50s they might need to keep working until their 70s because they don’t have enough savings to retire any time soon, the most common reaction I get is "No way! I can’t see myself working that long."

This reaction identifies a critical problem that needs to be solved: What is it about your work that makes you think this? Are you working too hard or too many hours? Are you bored with your work and ready for new things? Tired of the commute?

Then fix those problems, because retirement in your 50s and 60s isn’t necessarily the best answer, and it most likely won't be feasible or affordable given the meager savings most baby boomers have accumulated.

Perhaps we need to break the third stage of our lives -- the leisure/retirement phase -- into two periods instead of one. We might call this new third stage "independence," although I’ve heard others call it "freedom" or "flexibility."

In this stage, we’re free from expectations that others may put on our lives, free from preconceived notions of how we might live our lives. Free from the responsibility of raising a family. Free to do what we've always wanted to do. Free from advertising influences that tell us to spend our time and money in unhealthy and unfulfilling ways. We need to break free from the consequences of unconscious choices that we might have made earlier in our lives.

During this new stage three, our financial independence may come from wages, self-employment, financial resources, governmental benefits, efficient sharing of resources or, more likely, a creative combination of all these solutions. If we’re working, we’re doing more work that we like and less work that we don’t like. We may need to keep our job skills up-to-date, which may require a recommitment to learning, obtaining new credentials or pursuing alternative careers. We might work fewer hours to free up time to pursue our interests.

This might also mean we'll make less money, but perhaps we’re buying less stuff because we’re making more conscious spending choices.

The goal is to extend this period of freedom, independence and flexibility for as long as possible -- to be physically fit, mentally sharp, functionally independent and financially secure well into very old age, perhaps into our 70s, 80s or even 90s, if possible.

This leads me to the new fourth and final life stage, characterized by frailty and dependence. No matter how healthy and capable we may be in the third, independent stage, many people may still experience a period of significant physical decline and illness in their late 80s or 90s. During this period, you'll most likely be unable to work for pay and will need to rely exclusively on financial resources and governmental benefits.

You may also be relying significantly on others for care, assistance and support with daily living. Many of us have witnessed our parents’ final years, which gives us insight into the challenges and realities of this phase of life.

This new two-stage vision for the period formerly known as "retirement" may not be for everybody. Many people still work in physically demanding jobs and will be unable to continue working in their later years, and others may not have the wherewithal to make the necessary plans or changes in their lives. Nevertheless, this new vision may work for millions of boomers who are approaching their "retirement" years.

Individuals will need to make careful assessments of the retirement income they’ll receive from Social Security, savings and pensions to make the most effective decisions about deploying these resources for both their independent and dependent life phases. These assessments might convince them of the need to pursue income-producing activities that are meaningful and fulfilling in their retirement years. They’ll need to make financial and career decisions for this third, independent stage such that they'll still have the resources to support themselves in the fourth, frail, dependent stage.

Employers will need to adopt policies that accommodate older workers who want more flexibility in their lives yet can still contribute to a business and society in meaningful ways. Governments and communities will need to review how societal support and the environment can support these new goals.

The changes I'm suggesting here may not be easy, but they might be necessary. They might also be invigorating and exciting. Buckle your seatbelts!


  • Steve Vernon On Twitter»

    View all articles by Steve Vernon on CBS MoneyWatch»
    Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck and Recession-Proof Your Retirement Years.

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