Some executives, she says, take retirement buyout offers, then wind up with part-time consulting engagements that keep them active. Such work keeps them in the game—but it also removes the pressure on them from the daily grind. If a client has a plan like this and it’s been thought through, she frequently encourages them to go ahead, as long as they already enjoy a sound financial position. But planning is critical, and sometimes the pandemic-driven rush to retire gives her pause. The “grass isn’t always greener on the other side,” she said in a recent podcast.
Kinder cites the work of literature professor and author Joseph Campbell, who helped popularize the notion of the “hero’s journey.” This journey asks people to work through a crisis and emerge from it with a transformed and emboldened frame of mind. Kinder suggests advisors ask clients to envision what an ideal day, week or year would look like once time opens up for them. That’s part of a process of bringing “more excitement and humanity into their lives,” he says.
Through this process, clients can shed some old parts of their identity. “It’s rare that income and status remain as primary goals evolve,” Kinder says. And as a new life vision emerges, “the obstacles to achieve them often fade away pretty quickly.”
Somers cautions that life transitions such as these need a measured pace. “It’s so important to see the value of taking a time out to make heads or tails of all that has changed and all that may come,” she says. “We’re here as advisors to ensure that clients don’t make rash or abrupt decisions and instead slow down the decision-making process.”
Clients might need a period of contemplation that helps them adjust their long-held views about the meaning of life and money. They should ponder whether “they would still choose their past career if they were starting over today,” Somers says. If they choose to go back to work (or if they have to in order to keep building their retirement nest egg), they will have a chance to revisit their priorities about spending and saving—or to make adjustments for a rewarding life, even on a reduced income. Somers adds that when “we focus on what we have lost, we lose sight of the opportunities ahead.”
Still, if their clients are in the midst of a wrenching change, such as a job loss, advisors need to stress how important it is for them to stay engaged in the world. “If we become idle, we don’t prosper cognitively, physically or socially,” Somers says. “It’s important to acknowledge the built-in advantages that a job and a career gave us: routines, socialization, a sense of purpose and a sense of mastery.”
The Long Road Ahead
When a client stops working in their late 50s or early 60s (either voluntarily or involuntarily), an advisor will often need to kick the tires on existing financial plans and make sure they remain durable and robust. New clients often ask if they can afford to retire soon, and advisors can help by showing them the impact of future (perhaps more modest) income streams from part-time work or contract work that can strengthen a plan.
Advisors also need to help newly retired clients start to eliminate debt from their financial picture. That debt has become a growing problem for seniors. In 1989, the Federal Reserve said 49.7% of people age 65 to 74 had some form of debt. By 2019, that figure had swollen to 70%.
But there are a host of other considerations in play when people retire decades before the projected end of their lives. “Longevity planning” is an emerging academic discipline being spearheaded by groups such as the MIT AgeLab and the Center for Retirement Research at Boston College. These groups lay out the challenges ahead for what is bound to be a rapidly growing cohort of retirees.
The Boston College center published a report in July 2020 entitled “How Accurate Are Retirees’ Assessments of Their Retirement Risks?” Author Wenliang Hou said advisors need to help clients understand several risks. These include the risks of “outliving their money (longevity risk), investment losses (market risk), unexpected health expenses (health risk), the unforeseen needs of family members (family risk), and even retirement benefit cuts (policy risk).” It’s not the advisor’s job to scare clients but to be candid about such issues.
Take policy risk. The Social Security Administration has undercounted actual inflation when making cost-of-living adjustments. As my colleague Jacqueline Sergeant recently noted, Social Security benefits have risen 55% since 2000, but “typical senior expenses over the same period grew by 101.7%.”
Longevity risk may be the greatest challenge. According to Lee and Coughlin’s 2018 MIT report, there were 43 million people in the United States age 65 or older in 2012, and they accounted for 13.7% of the U.S. population. By 2030, around 73 million people will be in that age group, or more than 20% of the country’s population, the authors wrote. Despite a recent Covid-related dip in life spans, we’re generally living longer. Financial planning software MoneyGuidePro defaults to a projected life span of age 94 for female clients and age 92 for male clients.
A number of advisors are ignoring that default, expecting clients to live to 95 or even 100. How common will it be to live that long? According to Pew Research, there were around 450,000 centenarians worldwide in 2015. That figure is expected to surge eightfold to more than 3.6 million by 2050.