Working in Retirement Is the New Norm

Employees need to understand and plan for the decades ahead

By Stephen Miller, CEBS June 12, 2014

The retirement landscape is changing in fundamental ways, and navigating its unfamiliar terrain will require that employers help those approaching the traditional retirement age to understand they have several untraditional options.

Nearly three out of four pre-retirees over the age of 50 say their ideal retirement will include working—often in new, more flexible and fulfilling ways, according to a new survey report. With 47 percent of current retirees already having worked or planning to work during their retirement years, it will become increasingly common for people to seek work during this stage of their lives.

Based on a March 2014 survey of more than 7,000 U.S. respondents by financial services firm Merrill Lynch and consultancy Age Wave, Work in Retirement: Myths and Motivations sheds lights on work during retirement—a phenomenon driven by longer life expectancy, the elimination of most employee pensions, financial need and the reimagining of later life.

“By embracing these new realities and attitudes toward work in retirement, everyone from policy makers to employers and the financial industry will be better equipped to help people pursue their goals,” said Andy Sieg, head of global wealth and retirement solutions for Bank of America Merrill Lynch, during a June media briefing.

The New ‘Retirement Workscape’

Results from the study indicate that previous generations viewed retirement as a permanent end of work followed by continuous leisure. However, the modern-day reality for many pre-retirees and retirees is a dynamic future that the study defines as the new “retirement workscape” represented by four different phases:

  • Pre-retirement. Five years before retiring, 37 percent of pre-retirees who want to work in retirement will have already taken some meaningful steps to prepare for their post-retirement career; this rises to 54 percent among those within two years of retirement.

Tip: Encourage employees to talk with their supervisor and HR staff before they retire to explore opportunities for continued work on a more flexible basis, or to engage in work they find more motivating. Options that might convince valued workers to stay on include phased retirement, part-time or seasonal work, sabbaticals and mentorship positions.

  • Career intermission. Most pre-retirees do not seek to go directly from pre-retirement work to retirement work. They want a sabbatical with some time to relax, recharge and retool. More than half (52 percent) of working retirees say they took a break when they first retired. These career intermissions average 2.5 years.

Tip: Help employees stay up to speed in their field to facilitate a smooth work re-entry, such as by maintaining business contacts or continuing training to keep up with technology and other developments.

  • Re-engagement. On average, this phase lasts nine years and includes a new balance of work and leisure. Compared to those in their pre-retirement careers, people working in these “flex careers” are nearly five times more likely to work part-time (83 percent vs. 17 percent) and three times more likely to be self-employed (32 percent vs. 11 percent).

Tip: Unlike income from some other sources, income from working can help keep pace with inflation. However, those who are “re-engaging” should understand how working in retirement can affect Social Security, Medicare and other government benefits.

  • Leisure. In the fourth phase of retirement, people welcome the opportunity to rest, relax, socialize, travel and focus on other priorities. Working retirees expect health challenges (77 percent) or simply not enjoying work as much (61 percent) to be the most likely causes of their stopping work permanently.

“This study confirms that as people live longer and healthier lives, they’ll continue to find satisfaction from work even after they retire from their primary career,” said Ken Dychtwald, Ph.D., founder and CEO of Age Wave, during the media briefing.

“For many, work is an enriching experience that may not end at the age of 65 or even 70,” he added. “Whether it’s continuing to do what they love, pursuing a long-desired interest or simply seeking to remain socially engaged, there’s a revolution brewing. People have come to realize that retirement doesn’t necessarily represent the end of an active life, but rather the beginning of new and exciting chapters.”

Working in Retirement Myths

The Merill Lynch/Age Wave findings debunk four myths about working in retirement, according to the report:

• Myth 1—Retirement means the end of work. Today, 40 percent of people age 55 and older are working, a level among this age group not seen since the 1960s. Eighty percent of working retirees say they’re doing so because they want to, not because they have to (20 percent).

• Myth 2—Retirement is a time of decline. A new generation of working retirees is pioneering a more engaged and active retirement: 83 percent of retirees agree that working in retirement is a kind of antidote to aging because it helps people stay more “youthful,” while 66 percent say that when people don’t work in retirement, their physical and mental abilities decline more rapidly.

• Myth 3—Work during retirement is all about money. While a large number of retirees are definitely working to pay the bills, many more are motivated by nonfinancial reasons. When working retirees were asked what they feel is the most important reason to work, they were twice as likely to say “staying mentally active” (62 percent) as they were to say for “the money” (31 percent).

• Myth 4—New career ambitions are for young people. Nearly three out of five (58 percent) working retirees transition to a different line of work in retirement, and are three times more likely than younger workers to be entrepreneurs, or “retire-preneurs,” as the study describes them. Most retirees who moved into a new line of work did so to have a more flexible (51 percent) career with more fun and less stress (43 percent).

Tellingly, working retirees are three times more likely than pre-retirees to own their own business or be self-employed (32 percent versus 11 percent).

Factor Health Care Costs into Retirement Planning

Couples in the U.S. retiring at age 65 are expected to incur $220,000 in health care costs on average during their retirement years, according to an analysis by Fidelity Investments released in June 2014.

The estimate, which doesn’t include the added expenses of nursing home or long-term care and assumes traditional Medicare coverage, reinforces the need to incorporate health care into retirement planning conversations—including how much to save and when to retire.

Couples who opt to retire at age 62 can anticipate an additional estimated cost of $17,000 per year. The extra costs are health insurance premiums for this period prior to Medicare eligibility and estimated out-of-pocket costs. On the other hand, the potential annual cost reduction for couples who can delay retirement to 67 could be $10,000 per year.

Fidelity also found that, when asked, pre-retirees planned to retire at an average age of 65. However, recently retired respondents said they did so at 62 on average, often by choice but sometimes due to health issues or physical limitations. “This gap points to a growing reality for many individuals and couples who are at risk of facing far greater health care costs in retirement than anticipated,” the firm reports.

Stephen Miller, CEBS, is an online editor/manager for SHRM. Follow him on Twitter @SHRMsmiller.

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