'Classic' retirement becoming less likely

Once upon a time, the storybook vision of retirement focused on endless leisure hours filled with golf and travel. Whether that idealized vision was ever real for the majority of retirees is questionable. But for a growing number of today's workers, it is downright laughable. The one-size-fits-all vision of retirement has become a victim of the Great Recession and its collateral damage to investment portfolios, home values and job security. Increasingly, employees who don't have a pension expect to work past traditional retirement ages, if they can, as a way to make up the shortfall in their nest eggs. The stark reality is that many won't have the choice, due to layoffs or health issues. In an online survey of more than 3,600 private-sector employees, nearly 70% said that they won't be able to accumulate enough money to fund a comfortable retirement even if they work and save until 65. “American workers are adjusting their expectations of retirement, including working past age 65 and planning to work part time in retirement,” said Catherine Collinson, president of the Transamerica Center for Retirement Studies, which conducted the survey. “Now it's time to provide an updated road map to help them achieve retirement income to last throughout their lifetime.” People need to develop a clear vision of their retirement, including a backup plan in case they can't work as long as they envision, Ms. Collinson said. It might mean downsizing to a smaller home or relocating to a less expensive area, annuitizing a portion of their nest egg to ensure that they don't outlive their money or relying on family members for help. “Life's unforeseen circumstances, such as a job loss or health issues, can have a devastating impact on the best-laid plans,” Ms. Collinson said. “The "what if' scenarios are mission-critical for American workers of all age ranges to include in their long-term preparations.” A new study from MetLife Inc.'s Mature Market Institute proves that point.

OFF THE JOB

Despite predictions to the contrary, the study found that more than half of 65-year-old baby boomers are fully retired or working part time. And half those who are retired said that they retired earlier than they had expected, mainly because of health problems. Just as John Lennon wrote: “Life is what happens while you're busy making other plans.” Of course, the musician, who died at 40, never had to worry about retirement. Financial advisers need to adapt their investment techniques and how they communicate with clients to embrace this splintered vision of retirement. “Not all pre- and post-retirees have the same goals,” said Laura Varas, principal of Hearts & Wallets, a research firm specializing in retirement market trends for the financial services industry. “It is critical that the financial services firms know their audience.” Based on nationwide focus groups, the firm's study divides older investors into three main groups, based on their preferences and attitude about retirement income and advice. “Full-steam aheads” plan to work, at least part time, to avoid mental deterioration and maintain their independence. “Balancers” view part-time work as an insurance policy for the future and a way to earn spending money. “Leisure pacers” plan to stop working — or already have — but are more involved with their finances than ever before. Although many firms think of retirement income planning as a service that helps older Americans decide how and when to tap their personal assets, the term “retirement income” means different things to different types of older investors, Ms. Varas said. For example, the first segment interprets “retirement income” as a reference to entitlement programs such as Social Security. “Because this group tends to take responsibility for themselves and others, they don't even think "retirement income' applies to them,” Ms. Varas said. “This misunderstanding is a tragedy because many of these offerings are specifically designed for people like them.” Chris Brown, another Hearts & Wallets principal, cautions financial services firms and advisers about expecting older investors to consolidate all their assets. “Retirement income services may help providers increase wallet share, but only a minority of older investors will consolidate with a single provider,” he said.

EARNING SENIORS' TRUST

Some investors who have been burned by advisers in the past, for example, still may work with one but will put in extra time checking up on the adviser's recommendations. And while marketing to seniors, be careful how to word your pitch. “Pre- and post-retirees don't see themselves as senior citizens,” Mr. Brown said. “Financial services firms and advisers that use positive wording, such as "freedom,' to describe this phase of life, will have a stronger connection with this market segment.” Mary Beth Franklin (mbfranklin @investmentnews.com) welcomes your comments and suggestions for column topics.