Americans’ Perspectives on New Retirement Realities and the Longevity Bonus

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Among previous generations, navigating retirement was very often like getting to the other side of a lake. The destination was clear to see, and for most retirees the goal was the same: a time to rest and relax after years of hard work. With shorter life expectancies, the journey was, more often than not, predictably brief. On retirement day, many were sufficiently provisioned with generous benefits from their employer and government. All they had to do was paddle straight ahead.

Today, retirement is far more like a twisting, turning river. Its length is uncertain, and there are new challenges, discoveries, and potential troubles around each bend. Retirees are now living longer than any preceding generation. The average 65-year-old can expect to live another two decades or more. Retirees have unprecedented worries about healthcare costs, family financial responsibilities, and how they will fund retirement. Retirement itself is being redefined, as many retirees seek out new ways to remain productive, and earn income, in their later years. Retirement and retirement preparation are becoming far more complex, as new financial priorities emerge, couples look for ways to navigate key financial decisions together, and both pre-retirees and retirees seek trusted guidance throughout a retirement full of both challenges and opportunities.

In 2013, Merrill Lynch and Age Wave completed the Americans’ Perspectives on New Retirement Realities and the Longevity Bonus Study, conducted by leading research firm Harris Interactive. The study revealed four key “retirement wildcards:”

#1: Work & Leisure – A Revolving Door
Retirement now often includes a desire for continued productivity. Continued income is an important motivation in today’s uncertain economy, but stimulation, satisfaction and social connections are just as important.

• Seven out of ten pre-retirees say they would like to include some work in their retirement years. Most are seeking flexible work arrangements, such as part-time work (39%) or going back and forth between periods of work and leisure (24%).
• While money and financial security remain important motivations for retirement careers, 48% say continued “stimulation and satisfaction” are the main reasons they want to work in retirement (68% among the affluent).
• Many now view retirement as an opportunity for career reinvention, with half saying they want to launch into a whole new career rather than continuing the same line of work they did in their pre-retirement years.

#2: Health Disruptions & Concerns

For many, loss of health can be the most devastating wildcard in retirement. Health problems and the cost of healthcare now top the list of retirement worries-and even more so among the affluent.

• The expenses of healthcare are a top worry, as unanticipated medical expenses can derail years of retirement preparation. Wealthier pre-retirees and retirees are even more likely to rank healthcare expenses as their top financial worry in retirement (52% vs. 37%).
• Just one in nine pre-retirees strongly agrees they have the plans and resources in place for their retirement healthcare. In fact, healthcare is one of the top issues pre-retirees and retirees are seeking advice about.
• Almost three out of five retirees say they retired earlier than they expected. Although early retirement has often been equated with financial success, health problems are actually the top reason for early retirement.
• Retirees today are seeking new solutions to protect against retirement healthcare costs, such as increased savings, programs that supplement traditional Medicare (e.g., Medigap or Medicare Advantage), and long-term care insurance. And in fact, healthcare is one of the top issues pre-retirees and retirees are seeking advice about.

#3: New Family Dynamics

In today’s economic uncertainty, one or more family members may be struggling financially.

This can make balancing an individual’s or couple’s retirement needs with the needs of parents, siblings, children, and grandchildren a growing and complicated challenge.

• Financial success often brings greater family responsibilities. Higher-income pre-retirees and retirees are twice as likely to expect to provide support to their adult children, grandchildren and parents.
• When asked what is most important to pass on to future generations, the top priorities are values and life lessons (74%)- which are viewed as more than twice as important as money and financial assets (32%).
• Three-quarters of spouses say they now want to have equal responsibility in making major financial decisions. Today’s model for couples is a more collaborative partnership in terms of long-term financial planning and investing.

#4: Seeking “Retirement Peace of Mind”

At the end of the day, achieving peace of mind is the priority among pre-retirees and retirees. Many are seeking strategies to protect their financial assets and generate reliable income sources throughout what may be a longer retirement.

• Respondents ranked the importance of the following four key elements for retirement peace of mind as follows: financial security (60%), health optimization (14%), family well being (14%) and personal purpose (12%).
• Many pre-retirees and retirees seek to adopt more conservative financial strategies. When considering investments or insurance, people age 45 and older now say having guaranteed income* and protecting assets are almost four times more important than achieving higher-risk returns
• The boomer generation expects they will need to fund 41% of their retirement through personal savings and investments. Generation X expects to be personally responsible for half of their retirement funds.

*Any guarantees are subject to the claims-paying ability of the issuer.