| Retirement today isn’t the same as your grandparents’ or even your parents’ retirement. It’s a whole new ballgame. Many trends are changing the face and length of retirement as we know it. Retirees today face the possibility of a much longer retirement lifespan than their predecessors. They also have several issues to contend with that, for the most part, their forebears didn’t have as much pressure to address. |
What are those issues?
Rising health costs, changing definitions of a traditional retirement, increasing costs of living. And, in the present time, an uncertain global landscape and its economic effects. All of this can make retirement tricky to navigate, let alone to enjoy a financially comfortable lifestyle.
Here are a few retirement trends that are likely to change at some point during your post-career years — and that might affect you in the process: What Retirement Trends Should You Watch and Plan for? Keep an eye out for these retirement trends, and a smart play would be to plan ahead for them. Without further ado:
1. The definition of retirement is likely to continue changing. Today’s retirees aren’t just sitting back on their rockers. They are redefining what retirement means compared to prior generations. Their post-career lifestyles run the gamut, from starting new businesses and volunteering to traveling and consulting. The list goes on. Whatever their interests, many retirees are pursuing these activities with great enthusiasm. It’s not a case of “quiet aging.” In the past, retirement was generally a short period of time between when one stopped working and one’s death. But the new paradigm allows retirees to accomplish many things that they couldn’t do during their primary careers.
2. The retirement savings shortfall may well continue to become worse. Many people still have woefully inadequate retirement savings, even in spite of the current economic prosperity. Year after year, numerous studies suggest that lots of households don’t have enough put away for the future. According to numbers run by the Employee Benefit Research Institute, American retirement savers face a $3.83 trillion savings gap. The institute also estimates that 41% of households can run out of money in later life. In another recent study by Vanguard, those nearing retirement age with 401(k) plans had an average balance that was a little less than $200,000. Among savers age 65 and up, the median amount of savings was just $58,000. Many Americans may have to change their lifestyles or goals to make ends meet in retirement. That can shape the retirement expectations of the generations after them. Think of how the financial crisis, the Great Recession, and their aftermath are shaping young generations’ ideas now. Then there are the possible effects of this savings-shortfall trend on the market to consider.
3. People will likely have to work longer. Many prospective retirees may find they won’t be able to retire as soon as they would like. Instead, they may have to keep working for another five to ten years. For some, it might even be longer. After a decades-long span of working already, this may not be the most encouraging thing to hear. But this alternative can also pay off in three different ways. It gives workers more time to save for retirement. It cuts down on the number of years over which they will have to stretch their savings. And it may allow them to defer taking Social Security until they reach the maximum retirement age.
4. Roth accounts may increase in popularity. Among other changes, the SECURE Act eliminated the stretch IRA. Now families are looking to alternatives for multigenerational planning. Roth accounts offer tax-free treatment for estate transfers to non-spousal beneficiaries. Even more importantly, the account holder benefits from tax-free growth and tax-free withdrawals for life in retirement, so long as certain conditions are met. The Tax Cuts and Jobs Act also puts taxes “on sale” for a few years, offering taxpayers the chance to benefit from Roth conversions. Retirement savers may increasingly turn to Roth conversions as a means of generating large future tax savings while tax brackets are lowered for now. Where taxes might be in the future is anyone’s guess. Currently, Americans are sitting on record levels of U.S. government debt. There could also be some sort of “spillover” effects from growing U.S. corporate debt obligations.
5. Retirees will make greater use of financial vehicles paying guaranteed lifetime income. Thanks to the SECURE Act, the groundwork is set for bringing annuities, the only financial instrument capable of a guaranteed lifetime income, into work-based retirement plans. Much work remains to move this from an employer incentive-driven public policy idea to a reality. But the good news is retirement savers will have more options for receiving lifetime income down the road. Bringing annuities into 401(k) plans and other employer plans helps bring back a staple of the past: a defined-benefit pension. In the times when pensions were more common, you received regular monthly checks for as long as you lived in retirement. With pensions waning, annuities and their risk-pooled guaranteed income assurances are one way that American workers can beat back retirement savings shortfalls. Even if households do have enough saved for a comfortable retirement, annuities can also provide the benefit of regular, predictable monthly income. In fact, two-thirds of retirement investors, in a study by Greenwald & Associates, said they saw the value of having guaranteed lifetime income beyond Social Security.
6. Faced with rising expensive health costs, retirees will find creative ways to manage their healthcare spending.
Nowadays, retired Americans face a dizzying array of health needs, from Alzheimer’s and diabetes to strokes and general loss of physical mobility. Among other providers, insurance companies have responded to these growing needs with innovations of their own. One innovation is this. Many annuity and life insurance contracts have living benefits that pay enhanced proceeds for qualifying health situations. These covered situations include confined care, long-term care support, terminal illnesses, and certain chronic conditions. Some contracts even let you “accelerate” the proceeds on a tax-favored basis. Retirees may turn to these innovations and other solutions to help keep rising health costs at bay. This is at a time when healthcare costs have been growing at a rapid pace. According to Fidelity, an average 65-year-old couple retiring in 2019 could expect to pay roughly $285,000 in lifetime healthcare costs. That estimate doesn’t include long-term care expenses. Health savings accounts are another tool at retirees’ disposal. As long as someone has a qualifying High Deductible Health Plan, they can be eligible to make tax-deductible contributions to an HSA. Contributed funds grow inside the HSA on a tax-deferred basis. Funds can be withdrawn on a tax-free basis, so long as the money is used for qualifying medical expenses. What if the account owner ends up not needing this HSA money for medical expenses? No sweat. Then they can use it for retirement income at age 65. Because of this favorable tax treatment and special dedication for health needs, some advisors predict HSAs will be in much wider use for healthcare planning. Qualifying high-deductible health plans have greater out-of-pocket costs at the beginning, but superior coverage than traditional health insurance policies once the deductible has been met. Trend-Proof Your Retirement with the Right Guidance There are many trends happening in the retirement arena today. The rise in health costs, coupled with the need for guaranteed lifetime income, will undoubtedly lead to a rise in the popularity of annuities and life insurance. Roth accounts and HSAs may become more popular in the wake of the SECURE Act. And, of course, there will no doubt be retirement trends that few, if anyone, see coming. No matter what, a comfortable and financially secure retirement is well within reach. Ask your financial professional for more information on the modern trends in retirement and how they can affect you. What if you are on the lookout for an experienced financial professional to help you? Or if you want a second opinion of your existing retirement plan? Please give John a call at 704-451-7020, we do not charge a fee for our services.
|CasaSanta Financial Services 6913 Beamish Place, Charlotte, NC 28227 Phone: (704) 451-7020 email@example.com www.casasantafinancialservices.com|| |