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It's Not Your Mother's Retirement

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It is becoming increasingly clear that a “new retirement” is emerging.

More clarity to the picture comes from “It’s Not Your Mother’s Retirement,” a new survey released by MetLife. In the survey, women who have not yet retired were asked how they anticipate their retirement will compare to the retirement their mothers experienced. This is a direct and effective way to measure generational change, and the predicted changes in retirement living are dramatic.

The results show 77% of these working women expect to travel during retirement, compared to 35% of their mothers; 71% expect to pursue further education, compared to 17% of their mothers; and 78% expect to do unpaid volunteer activity, compared to 44% of their mothers.

Further, they expect to increase, not decrease, their caregiving–74% of these working women say they expect to provide care to spouses or relatives while only 52% of their mothers did so.

These expectations are probably a function of people living longer.

The only activities the working women do not expect to do in much larger numbers during retirement than their mothers are homemaking, home maintenance activities, and relaxing and doing nothing.

The message is: In the new retirement, women, who will be healthier than the previous generation and have longer life expectancies, will do a lot more, including wanting to spend more money.

It is not surprising that these working women expect to be more active and do more things in retirement than their mothers. After all, they had much higher expectations and activities than their mothers. Why shouldn’t their retirements be different than their mothers as well?

But let’s consider the costs. Travel and education have substantial costs, even volunteering and caregiving involve additional expenses. Clearly, the emerging retirement will not only be longer and involve more health care costs for women; it will also be a lot more costly.

Another factor is of interest. These working women will be more involved in financial decision making during retirement than their mothers were.

Just focusing on the married women, about 2 in 5 of their mothers had little involvement in financial planning; the husbands took the lead. But that is down considerably with the working women, only 24% of whom now cede the major part of the planning responsibility to their husbands. Tomorrow’s female retiree will be involved in almost everything, including financial planning.

A key question, of course, is how adequate are the accumulations to pay for the new retirement?

An analysis of data from the Federal Reserve Board Survey of Consumer Finance provides a fairly grim picture. Consider households headed by someone ages 55-64, an age range in which 43% of the women (and 37% of the men) are already out of the labor force. Here, the levels of financial assets are insufficient.

Many financial planners think retired people should start out spending 4%-5% of their accumulations. Spending 5% means having to accumulate 20 times income. If we take just half of that, 10 times income, as the objective, the shortfall is still there. (See the chart.) It is apparent that accumulations at this age group have a long way to go in very little time.

Perhaps this is why, of the many women that MetLife surveyed, 74% expect to work for pay in retirement, while only 25% of their mothers did so.

For many, work in retirement is the way out of the dilemma of hoping for an active and costly retirement while having relatively low accumulations.

But there is clear researched evidence that many people who want to work in retirement cannot because of limitations of illness and disability, family factors, and the difficulties that many older people have in finding employment. So work in retirement will not be a solution for all.

The new retirement is more than a fervent hope. A generation of women who demanded more involvement throughout their lives are entering retirement with more education, energy, life expectancy and health than the last generation. They are not going to accept sitting idly by, constrained not by health, but by finances.

Further, I do not think this cohort of women will be as sanguine as their mothers have been in watching their financial capacity in retirement dwindle as they age.

This moves the discussion foreword to considering what will likely be “the new retirement portfolio.” Funding the new retirements of increased expenditures will take financial portfolios with increased efficiency.

For many, that should include more use of annuities that provide guaranteed streams of income for life: either guaranteed minimum withdrawal benefits for life or annuitization.

Both products protect against outliving resources, a key concern of many women. Both are also efficient: 1) the GMWB for life allows a greater proportion of assets to be put into equities while protecting against downturns, and 2) life annuities provide greater cash flow for less money.

The conclusion is inescapable. Women in the next generation expect retirements that are different and more costly than the prior generation. Therefore, their financial portfolios will have to be different, and more efficient, too.

Mathew Greenwald is president of Mathew Greenwald & Associates, Washington, D.C. His e-mail address is [email protected]

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