Around two million baby boomers per year for the past decade decided that they had worked long enough and were ready to retire. In 2020, that figure surged above three million, according to the Pew Research Center.

A recent survey by Fidelity Investments found that 20% of people within 10 years of retirement decided to do it earlier than planned. The Covid-19 pandemic, and the profound disruption it had on people’s lives, led many to revisit their goals, values and concerns. Surging portfolio values make various lifestyle options more realistic for many people in their late 50s and early 60s.

Not all of these baby boomers (those born between 1946 and 1964) are stepping off the treadmill voluntarily, of course. Some mid- to late-career employees were downsized before or during the pandemic. Some may be hard pressed to find themselves with the same earning power they had before.

And job loss has an impact beyond finances. There’s an emotional aspect, a hole in one’s life, as well.

“When you don’t see something coming [like the pandemic], it can really knock you off your pins,” says Moira Somers, a Canadian psychologist, professor and author. An abrupt change in career can create deep emotional distress for clients who were cruising toward the end of their work days, she says. “It’s been an especially hard time for people that have seen their jobs as a fundamental part of their identify.”

This is exactly the kind of situation in which advisors really earn their keep. George Kinder, founder of the Kinder Institute of Life Planning, insists that challenging periods can help open the door to new perspectives and possibilities. Advisors who develop life planning skills “learn to develop empathetic and inspirational connections with clients,” he says.

If you want to help clients with major transitions, you have to start with good listening skills. Financial advisors have to let their clients articulate the fears and concerns that may initially lead them to despair. By working through these conversations, advisors can move clients from “sorrow and depression to excitement and enlightenment,” Kinder says.

For some clients, change could re-energize their lives. “This is an incredible time for people who have saved enough money for an extended retirement,” he says. “They can put their mind to what is most important for them.”

Some of them may spend more time with their kids. Others might take up some new activity like learning to sail or skydive, and still others may become active with philanthropic causes.

In August 2018, the Journal of Financial Planning ran a research paper called “Describing Life After Career: Demographic Differences in the Language and Imagery of Retirement.” In the paper, authors Chaiwoo Lee and Joseph F. Coughlin from the MIT AgeLab noted 10 popular words people use in describing an ideal retirement: “relax,” “happy,” “travel,” “retirement,” “family,” “fun,” “success,” “freedom,” “money” and “fulfilled.”

What’s getting in the way of these things? That sense of loss that happens after people endure abrupt life transitions. More specifically, people might feel their status and sense of self-worth are gone when they are no longer central figures in their workplaces.

If clients haven’t processed those more painful feelings, they might sabotage their own retirement. But clients who have concrete ideas about pursuing alternative activities can thrive. Lisa Brown, partner in charge of Brightworth’s corporate executive client group in Atlanta, says many recent retirees land consulting work and other activities and appear very refreshed six months after leaving the mother ship.

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.

Different issues tend to get more attention during each decade of retirement, and advisors need to guide clients through those phases. For example, when you’re at the start of what may be a three or four decade retirement, it’s crucial to stay engaged. As Somers says, “The brain needs novelty and a challenge.” That’s why many advisors recommend that retired clients consider part-time work for a time to ease away from working full time and get a sense of the transition to no work at all.

When I suggest to my own clients that they first downshift to part-time work, many of them are pleasantly surprised to hear that their employers still want to tap their knowledge, even if only for a few years.

Glide Paths And Smiles
Once your client has retired, there are two investing concepts he or she needs to become acquainted with: the equity glide path and the retirement spending “smile.”

Conventional wisdom suggests that retirees should steadily sell off their growth-oriented investments and make their portfolios more conservative as they age. But industry thought leader Michael Kitces believes such an approach may be ill-advised.

In 2013, he and retirement planning specialist Wade Pfau co-wrote a research paper entitled “Reducing Retirement Risk with a Rising Equity Glide-Path.” They concluded that “a declining equity exposure over time will lead the retiree to have the least in stocks if/when the good returns finally show up in the second half of retirement.” They added, “with a rising equity glide path, the retiree is less exposed to losses when most vulnerable in early retirement, and the equity exposure is greater by the time subsequent good returns finally show up.”

Remember that the paper was written when extended longevity trends weren’t as evident as they are now, and the authors’ key takeaway may be even more relevant today than it was in 2013 given the current state of equity markets. Unless the S&P 500 suffers a major drop in the final months of 2021, the index is on pace to post its 10th double-digit gain in the past 12 years. If that’s a hint stocks are due for a breather and might post a sizable drop in the next few years, it means clients may have an even greater need to maintain meaningful equity exposure in coming years to benefit from a market rebound that may come later in their extended retirement.

Though it’s an advisor’s job to be thoughtful about the market’s performance, the client’s withdrawal rate and the tax efficiency of those withdrawals, there’s another aspect of client behavior they need to consider. Clients tend to be overly cautious about spending in the early years of retirement, and that might not be the right idea.

That’s where the “retirement spending smile” comes in. It assumes that as we age, we tend to slow down, get more sedentary and spend less. Which suggests that new retirees should actually be encouraged to spend more on travel, dining out and other types of discretionary items.

David Blanchett, the head of retirement research at Morningstar, wrote in the May 2014 Journal of Financial Planning that a retiree’s spending tends to fall in real terms at roughly 1% per year for the first 20 to 25 years after somebody leaves work.

However, because of the late-in-life surge in chronic care spending, retirees’ expenses start to rise in their final years. Even if clients have long-term-care insurance policies, these may not cover all of their expenses, which means they must set aside funds for extra costs.

And those costs keep on rising. In 2014, a private room in a nursing home cost around $65,000 per year, according to Genworth Financial. By 2020, that figure had surged 62% to around $105,000.

As annual costs keep rising, so do the number of years people may spend in a facility as they live longer. And there’s also the prospect of dementia, whose incidence rates increase with age.

To be sure, an early retirement (either planned or unplanned) in tandem with increasing expected life spans can render a long-term financial plan less viable. Clients may not want to hear about the longer-term financial risks associated with a very lengthy retirement. Still, an advisor is not in a position to sugarcoat matters when the numbers don’t fully add up. When that happens, your insights about extended work and longevity could be the difference between a merely decent financial plan and a robust one.