Each decade the baby boom generation (helped along by increasing wealth and new technologies) has challenged and reshaped the way society does things. Well, now the baby boom generation is hitting age 60, what can we expect?
The bulk of the baby boom generation is now in the 50-65 age bracket and preoccupation with “retirement” and the retirement lifestyle is increasing. Where just 20 years ago there was serious debate about lowering the retirement age, there’s an increasing groundswell of boomers who are thinking the other way – they want to keep working, they enjoy the work, they’re at the top of their game and they like the money, thank you.
There are several reasons for this, of course: First, is the prospect of living a lot longer. If you make it to 60, then chances are you may live into your nineties. Do you have enough money for another 30 years?
Next is the dependency problem. I’m not talking cigarettes or booze – I’m talking kids. Increasingly, adults are likely to inherit blended families, and adult kids who (thanks to student loans) choose to live at home. Then there are the parents. If you’re 55, then your folks are around 80, and probably need some level of care.
If these demands put pressure on boomers, then there is also the desire to maintain an attractive lifestyle. Retirement is like turning off an income tap – No more travel? No new plasma screen? The prospect isn’t attractive.
So, faced with these issues, is it any wonder that many boomers don’t want to reach the fateful day when they get the gold watch and go home for good. They want to slow down, rather than stop, and – more to the point - they want to do it on their own terms.
In effect, retirement isn’t what it used to be. It used to be a singular sunset zone after age 60. Now it has two or three distinct phases. So you need to think about that, and plan the best strategy for you and your partner.
The first phase is about winding down at work. Some people are cutting down to a three-day working week, or taking longer holidays, or going onto a contract arrangement. Others are choosing to work full-time beyond 65, often because they simply love their work and they’re at the peak of their game.
The second phase is what I call the golden years phase, when you have the health, and possibly the wealth, to live it up and enjoy a more recreational lifestyle.
Inevitably time catches up with the elderly, and the third phase – it may begin at 70 for some, or at 90 for others – is about conserving your health and perhaps dealing with the loss of a partner.
Whatever phase you’re in, don’t forget that age still brings health risks. A mistake that many people make as they plan for retirement is to forget that a health crisis has an increasing likelihood of occurring. A heart attack, diabetes, a melanoma or even, out of the blue, Alzheimer’s or worse. These things happen and you need to think about how you and your partner would cope.
Add to health uncertainty the potential erosion of state superannuation entitlements, relative to the cost of living and it can be hard to know how to start making preparations.
Financially, the three phases are broadly about wealth accumulation and then wealth protection. The most important aspect is having a clear picture of how you are going to accumulate the necessary capital to fund your lifestyle in retirement. To do this you first work out how much income you are likely to need; then work out the amount of capital which will meet this, and finally the strategy (or route) you will take to get this capital. It pays to put together a flexible strategy that enables you to move through the different phases. Growing your wealth will be the focus earlier on, and preserving your wealth later; however it is also vital to have access to some money easily in order to meet the unexpected crisis.
The route you take involves the best use of yourself as the income earner and the best use of your existing assets. For salary earners, superannuation and/or salary sacrifice might be the best route. For others it might be borrowing to invest in rental property or creating a business. If you are contemplating downsizing your home to free up capital make sure you are happy to downgrade to something you are happy with.
The planning can be made easier with the help of a financial adviser who will know the financial instruments or tools that fit with your own situation. They can guide you, motivate you to achieve your goals and keep you on course.
Retirement is increasingly a dynamic, ever-changing life-stage. Even within the past decade it has been redefined. Your retirement planning needs to keep up!