Baby Boomers and the New Face of Retirement

How are you planning on spending your retirement? Playing golf? Painting watercolors? Volunteering? If you’re part of the baby boomer generation, you may be asking yourself an entirely different question: “Will I be able to retire at all?” 

Baby boomers are the generation of Americans born from around 1946 through 1964 in the “baby boom” following World War II. The oldest of the generation is just now hitting retirement age—and coming face to face with the fact that golf may have to be postponed. 

The timing is not good. The private sector has shifted from pensions, which promised income for life, to 401(k)s, which depend on unpredictable markets. And if you’re lucky enough to have a traditional pension, those guaranteed benefits aren’t guaranteed after all. In other cases, baby boomers have assumed that social security would cover their golden years: 35% of those over age 65 rely almost totally on Social Security alone. But that money just isn’t there anymore—the system already pays out more than it receives in taxes. The government’s debt is through the roof and the economy is at a historic low point. Many boomers haven’t saved much, their home equity was depleted in the housing crisis, and they owe money on their credit cards. 

Finding Your Encore Career

So what’s the solution? Well, according to the AARP, 40% of baby boomers plan to work “until they drop.” That’s not always a bad thing, especially if you love what you do—or plan to quit and start a whole new career. The AARP has noticed a steep rise in the number of these “encore careers.” It’s the chance to do something meaningful, stay intellectually stimulated and active, and delay tapping into your savings too early. 

An encore career doesn’t mean starting from scratch. It can mean taking a skill or passion—yoga, for example—and turning it into something lucrative (teaching yoga to other seniors). Even if you’re only working part-time, you’re delving into your savings that much less. Plus, it gives you more time to build up your 401(k) balance. You’ll also receive higher Social Security benefits if you wait until 67 or even 70 to retire, versus retiring at 62. 

To figure out how an encore career might affect your own situation, use Merrill Lynch’s online calculator called The New Retirement Illustrator. In addition to your age, the amount you have in savings, and how much you’ll want to live on each year, the calculator lets you include a “transition phase.” During this phase, retirees continue to work on their own terms. As you’ll see, transitioning slowly from a full-time career to a traditional retirement can make a big difference on how much of a nest egg you’ll actually need. Even just a two-year transition phase can improve your retirement plan. 

The new face of retirement shows baby boomers passionately working past retirement age—but maybe you just can’t abandon the idea of a traditional retirement. Here are some other ways to preserve what you’ve worked so hard to save: 

Don’t panic. If much of your savings is in your 401(k), your mood may rise and fall with the market. But remember that while markets crash, markets also rebound. A bad day on Wall Street isn’t cause to sell off all your assets. Wait until things have stabilized, take some deep breaths, and talk to your financial advisor (or do your own research). Making rational decisions is always a sound financial investment. 

Keep those contributions coming. While you’re still working, don’t cut back your 401(k) contributions, no matter what the market does. And if your employer matches your contributions, pay into it as much as you can. Plus, if you’re over 50 this year, you can also utilize catch-up contributions, which aren’t subject to the general limits on 401(k) plans. 

Sign up for Medicare on time. Baby boomers are especially vulnerable to medical debt. Americans are living longer and the cost of healthcare is rising, putting another wrinkle in the new face of retirement. To relieve medical debt, the most important thing you can do is stay active and healthy. Consider signing up for Medicare on time. By signing up during the seven-month window that begins three months before the month you turn 65, you can avoid a premium increase. Make the most of the program. Medicare offers a free physical exam within the first 12 months of membership. Your doctor will do a thorough exam that includes preventative care.  

Make a plan. Just like any important event or purchase, retirement calls for a plan. You may have been looking forward to it all your working life, saved every penny, and can’t wait to finally take that salsa class, but approach retirement with financial caution. Keep in mind that you’ll owe taxes on withdrawals from 401(k)s and IRAs, and that you’ll be required to withdraw from those accounts after you turn 70½. If you don’t, you’ll get hit with a tax penalty. Also, make sure your nest egg is really big enough to sustain you into your golden years. Remember, we’re living longer but that means we may outlive our savings. 

Despite the current economic climate, it pays to stay positive. We can officially say goodbye to the cliché of a doddering old grandma baking cookies in a retirement community and welcome the new face of retirement: vibrant older Americans working and living for decades past retirement. As the baby boomer generation starts retiring this year, they’re redefining the word senior—just as they’ve redefined every stage of life they’ve touched. 

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