Beyond the gold watch: Retirement has transformed

A new year, a new you!
A new year, a new you!   

The days are long past when retirement meant a gold watch and a few years dozing in a rocking chair. For some, "retirement" now consists of a second career, paid or otherwise, and better health. But that isn't even the half of it.

New workforce realities, demographic shifts and changes in retirement financing stand to fundamentally transform how we will experience later life — in ways that are both positive and negative.

Senior couple retirement
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"Retirement is no longer on autopilot for most people," said Richard Johnson, a senior fellow and director of the program on retirement policy at the Urban Institute, which recently released comprehensive data on the changes under way in that stage of life.

One of the most visible shifts in retirement has to do with work. Labor force participation has been declining for men under age 62 since the 1970s, even as more women joined the workforce. But older Americans of both genders are working longer. Except for a dip in the last few years by men ages 65 to 69, older workers overall are a growing presence in the workforce, the institute found.

As for the future, the Labor Department forecasts even more overall workforce participation by older workers: Over the 20 years from 2002 to 2022, it expects the participation rate to rise from 61.9 to 67.5 for workers 55 to 64, and from 20.4 to 31.9 for those 65 to 74. Even among the oldest workers, the department sees the participation rate rising from 5.1 to 10.5.

The changes in workforce participation are narrowing the financial gap between men and women in terms of lifetime earnings. Women's lifetime earnings have been rising for decades, and they will likely continue to do so, according to the institute. For men, lifetime earnings are on track to increase for the cohort born between 1980 and 1989, but that increase follows decades of earnings stagnation.

Men's lifetime earnings will continue to be well above women's, according to the institute's forecast. For the 1980 to 1989 cohort, men can expect an average of more than $1.6 million in 2015 constant dollars, compared to roughly $1.2 million for women.

But the figure for men is roughly equal to lifetime earnings for men born between 1940 and 1949. In contrast, women in that older cohort can expect to earn an average of just over $600,000 in 2015 constant dollars over their lifetimes, little more than half what their younger counterparts stand to pull down.

Women may be gaining in lifetime earnings, but men are enjoying a greater increase in life expectancy. According to the Centers for Disease Control, in 1970 men's life expectancy at birth was 67.1 compared to 74.7 for women.

In 2010, that gap had narrowed: Men's life expectancy at birth was 76.2, and for women it was 81.0. The Social Security Administration calculates that a 65-year-old man today can expect to live to 84.3 on average, and a woman will reach 86.6.

That said, the increase in men's longevity may have a silver lining for women, since they will spend less time as widows trying to support themselves on lower lifetime earnings. Widowed women over age 65 are more than three times as likely as their married counterparts to live in poverty, according to Social Security Administration data.

Widowhood "is still a real problem and something women need to prepare for," Johnson said. But "the decline in widowhood really helps women a lot."

So does working later in life. But for both men and women, working past age 65 is easier for some workers than others. Those who are better educated and in less physically demanding jobs are likely to find that work in later life is more attainable.

"We have seen an increase [in continued work] among people in their early 60s for men and women with only high school diplomas," Johnson said. "There is this improvement, but it still lags behind what we are seeing for better-educated people."

That shift has social implications, he said. "The fact that less-educated people in worse health are not working longer is going to increase income inequality at older ages."

That is not the only challenge looming for retirees.

More and more, people are entering later life burdened by debt. The Urban Institute calculated that almost 1 in 4 adults age 65 or older were carrying mortgage debt in 2012, up from just over 15 percent in 1998. In addition, the median overall debt level for that age group neared $25,000 in 2012, up from less than $15,000 in 1998.

Then there is the matter of paying for retirement itself. Employer-sponsored pensions are on track to virtually disappear, according to the institute's data. They expect less than 10 percent of the cohort born between 1990 and 1999 to have a traditional pension in retirement, and defined contribution plans like 401(k) plans to be much more the norm.

Unfortunately, though, many workers do not have access to a workplace retirement plan. And even among those who do, saving can be hard at a time when college costs are rising faster than inflation and wage growth is slow at best.

Good, bad or ugly, retirement is changing in fundamental ways. But on balance, Johnson remains optimistic.

"Despite a lot of things we hear, the sky isn't falling on retirement," he said. "People are going to still spend a lot of time in retirement, and a lot of people are going to do pretty well. In addition to the challenges that get a lot of attention, there are some positive developments going on as well. Our projections don't show that things are going to be dramatically worse in the future than they are today."

— Kelley Holland, special to CNBC