Authored By Katie Benson, Let’s Talk About Annuities
In the 21st century, retirement is undergoing a significant transformation, shaped by various factors, including economic uncertainty, high inflation, and changing societal attitudes. –Katie Benson
For many people, the traditional notion of retiring at a fixed age and enjoying a life of leisure has become increasingly unrealistic. As a result, studies indicate that a substantial portion of the workforce will choose to remain active, engaged, and employed well into what was once considered their retirement years.
To put things into perspective, the Federal Reserve suggests that the national average for a single individual to live comfortably in retirement is approximately $967,000 in savings. This figure equates to about $74,000 annually for the average American to sustain their lifestyle during retirement. Nevertheless, the reality is that the typical retirement savings balance in the United States is just $144,000, according to the Federal Reserve.
Unrelenting inflation that has magnified the challenges of saving for retirement, creating an emerging trend, will alter retirement planning dramatically. As inflation erodes the value of money over time, individuals must accumulate more significant retirement savings to maintain their purchasing power. This reality adds pressure to the already daunting task of saving for retirement.
A recent study conducted by Voya Financial reveals an evolving perception of what successful retirement means. Among baby boomers still working, 59% anticipate employment in some capacity during their retirement years. The intention to work long past the traditional retirement age extends to Generation X, where 60% plan to keep working. And, among millennials, 49% anticipate working into their golden years. Around 54% of American workers have accepted that retirement includes some form of employment or engagement.
The Voya survey and other retirement research demonstrate how the definition of retirement continues to evolve. The traditional model of abruptly stopping work at a certain age is morphing into a more flexible and personalized approach to retirement. This transformation, driven by multiple factors, includes changing attitudes toward older workers, economic uncertainties lingering in the wake of the COVID-19 pandemic, and global unrest.
However, economic fluctuations are not the only reasons for this evolving definition of retirement. A significant portion of those surveyed expressed their intention to continue working in retirement to improve their mental and physical health.
Some people are re-envisioning retirement because they want more time to grow a safety net to help them cover unexpected costs, such as medical expenses and long-term care. Having stronger safety nets can help create more security and peace of mind in a world of unpredictability.
Gen-Xers and Millennials, watching their parents and grandparents struggle to make ends meet in retirement, now realize the inadequacy of relying solely on Social Security. For 40% of retirees, Social Security is their only source of income, yet it provides an average benefit of only about $20,000 annually. By working another job, either part-time or full-time, or starting a side gig or small business, retirees can supplement Social Security benefits. Even people planning to get maximum benefits by waiting until age 70 say they must continue working for as long as possible.
Geographical disparities also play a role in the evolution of retirement planning. The cost of living varies significantly from one state to another, causing variations in the savings needed to retire comfortably. For example, it takes around $1.7 million to retire well in Hawaii.
Conversely, Kansas is the most affordable state for retirement, with retirees needing around $753,000 in savings. These extreme differences highlight the need for a more realistic, personalized, and flexible approach to retirement planning.
SUMMING IT UP:
The 21st century is witnessing a significant transformation in the concept of retirement. The traditional model of retiring at a fixed age and enjoying a leisurely life is changing to a more dynamic and personalized approach to retirement. This shift is due primarily to the challenges of saving amid high inflation, coupled with the desire of older individuals to remain mentally sharp and financially secure. As the workforce redefines retirement, individuals must adapt their financial planning to meet the evolving retirement landscape, ensuring they are well-prepared for the challenges and opportunities.
If you’d like to discover a way to create predictable, guaranteed income streams in retirement that you won’t outlive, contact me today. I am always glad to show retirees and pre-retirees how to grow, preserve, and protect their nest eggs.
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