Today’s retirees face a whole new set of financial challenges. Thanks to improvements in medical technology and increased life expectancies, about half of retirees find themselves sandwiched between their own kids who may still be in college or struggling to break free of the nest, and their aging parents who may require assistance in their daily living. With all of this in mind, many retirees find they are actually spending more in retirement than they did while they were employed.

Better to Manage your Risks than your Investments

The two biggest risks all retirees must confront are longevity risk and inflation risk, and, unfortunately, both are inescapable. Compounding these risks is the fact that most people are either unaware of them or have not fully grasped their significance. For today’s retirees, longevity risk is a new phenomenon. While people may understand that they can expect to live longer, few realize that age longevity is constantly expanding, meaning that the higher your attainted age, the greater your life expectancy. The risk of longevity is further compounded by the risk of inflation. Even at an average inflation rate of 3%, the cost of living will double in 20 years which could put many retirees’ lifestyle goals in jeopardy.

Retirement as a New Life Cycle

For this reason, most retirees are viewing their golden years not as retirement, but as a new life phase in which earnings from some form of employment or a business may be a necessity. But, who says that is a bad thing? Many people can’t imagine themselves coasting through 30 years of life without being able to apply their skills or knowledge in a meaningful way. For many, it is an opportunity to regenerate themselves through new opportunities and new knowledge. Instead of an ending phase of life, retirement will be looked upon as a new stage of life in and of itself.

The prevailing attitude among a growing number of pre-retirees is that they aren’t going to limit themselves by trading a life of work for a life of leisure; rather they are going to take control and exchange work that they no longer want to do for work they will enjoy doing.

Today’s retirees are finding that retirement requires at least as much psychological and emotional preparation as it does financial preparation. So, retirement planning needs to include a thorough assessment of human assets and liabilities along with an assessment of financial assets and liabilities. It is no longer enough for retirees to know how much money they will need to live; they need to know how they will be able to make the most of this new life stage.

By focusing primarily on financial issues, traditional planning reduces retirement to an economic event with its financial objectives marked by a finish line. While this process may address the financial goal of creating a sufficient standard of living, it doesn’t address the larger, more important issue of the quality of life.

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