Is retirement dead? It's a scary question, especially if you're currently working hard with hopes of kicking back, relaxing and enjoying spending your time anywhere but an office one day. But we think the answer is yes, traditional retirement is going away even if it hasn't died out completely quite yet.
Before you start worrying too much, the fact that we think retirement as we know it is a thing of the past isn't necessarily a bad thing. To understand that, just consider where the traditional idea of retirement came from in the first place.
A few generations ago, people started work in their late teens or early 20s. They likely stayed at the same company until they were into their 50s or 60s, or they at least spent the majority of their working years with the same employer. That loyalty could be rewarded with retirement plans and pension programs.
When Grandpa retired, he likely had a pension to help fund his retirement years. And not to be callous or morbid, but those retirement years were probably shorter than what they are today. People who retired at 65 weren't expected to live too much longer, meaning they only needed to pay for a retirement that was 10 or 15 years long.
You can start to see why traditional retirement no longer works for today's employees and workers. Pension plans eventually gave way to 401(k) plans that employees needed to contribute to and fund themselves, and many of today's employees don't even have access to those plans. In fact, just 14 percent of employers offer 401(k) plans or defined contribution plans to employees.
That means people increasingly are responsible for the cost of their own retirement, which is likely to stretch for several decades. Retiring at 65 today could mean your retirement fund or nest egg must cover 30 years of living expenses. All of these factors make it a much more costly undertaking than it used to be.
None of this even considers whether retirement is truly desirable anyway. Increasingly, people find that it's not what they actually want to do. For one, it might literally be bad for our health and well-being. A study from the Institute of Economic Affairs found that retirement can lead to issues such as loneliness (which is incredibly detrimental to happiness and physical health) and inactivity or immobility.
That makes sense when you actually consider what retirement looks like day to day. The idea of putting your feet up and doing nothing sounds great when you're in the thick of your career, family responsibilities and other to-dos that have you running a mile a minute right now. But is having nowhere to go, nothing to do and no one to talk to really that appealing if you do it day in and day out?
Either extreme — whether you're running yourself ragged with work today or sitting around having no work to do at all in the future — isn't conducive to our happiness and health. So what's the solution?
We think retirement could start to evolve. We expect to continue to see a shift away from the old-school, traditional idea of retirement in which people's days are filled with a lot of golf but not much else. Today's retirees and people who will retire in the next 10 and 20 years (and even farther into the future) are active and want to continue being productive in some way.
That doesn't mean they keep working their same, full-time job until the end of time. But because they worked hard to build retirement savings and wealth over their working years, they're now free to explore other activities, jobs and positions without worrying about the number on the paycheck from their work.
In fact, we already see that happening with clients who start an encore career, working full or part time in fields that always interested them but were always outside their established careers. Others start businesses or find ways to monetize their hobbies to stay engaged and active.
We see people take "mini retirements" or "rolling retirements." They're no longer working up to a certain day, quitting and never picking up another job or role again. As they enter this new stage in life, they simply change what they want to do. And they're free to do so because, again, they already did the work of saving and investing for the future.
So they're no longer reliant on making a certain amount of money, which frees them to pursue opportunities that capture their interest or imagination, even if it doesn't come with the big salary they needed during their working years. Doing retirement this way means you're still free from the 9-to-5 grind but instead of transitioning into a sedentary, quiet life, you remain engaged in your passions and interests.
It's a benefit to your mental and physical health. It can also boost your fiscal health, too. The other upside of continuing to do some kind of work is that it brings in some kind of income. That can alleviate the extreme pressure to save every penny you'll need in "retirement" before you get there and provides you with more options and freedom once you move into this stage of life.
(Editor's Note: This column originally appeared at Investopedia.com.)
— By Eric Jansen, founder, president and CIO of AspenCross Wealth Management