Rethinking Retirement

The traditional way of envisioning retirement, settling into a comfortable life of pension payments after the going away party and the bestowal of an expensive watch, is going the way of the dinosaur. Though they approach the matter from different vantage points, that’s the import of two recent blog entries.

“Know someone who retired at age 65 and lived out their golden years in paradise with no cares in the world? Well, I used to know people like that, but most of them are dead,” writes Michael Webb in “What Is Happening to ‘Traditional’ Retirement,'” his recent entry in Cammack Retirement’s Top of Mind blog. Webb argues that the entire mindset concerning retirement needs to be changed.

The “growing financial independence/retire early (FIRE) movement” is “throwing the traditional age of retirement out the window,” asserts Webb, adding that statistics Hartford Funds Senior Vice President of Strategic Markets John Diehl reported at the Retirement Advisor Council’s annual meeting challenge the traditional way of regarding retirees and even their response to being retired. For instance, said Diehl, two-thirds of new retirees feel, anxious, bored or lost; money is not the top reason why older Americans stay on the job; and nearly one-quarter of Uber drivers are over age 50, and earning money is not the top reason for working. “Traditional retirement is being replaced by the idea of ‘what comes next?’” Webb writes.

“I am in favor of changing the term ‘retirement’ to ‘financial independence,'” says Webb. And Chris Schmidt in “The Disappearing DB Pension Plan,” a recent entry in CFO.com’s blog, suggests that is something that plan sponsors are embracing. Governing a defined benefit (DB) pension plan and its investment strategy “has always been challenging,” he writes, asserting that “Over the past decade it’s also become increasingly complex, not to mention costly, spurring many plan sponsors to reevaluate their pension plan approaches.”

Schmidt reports that CFO Research and Mercer found that more than three-fourths — 77% — of the pension sponsors they surveyed expect to change how their plans are managed in the next two years, 17 percentage points more than responded that way in 2017. Pension de-risking is one of the strategies they are pursuing or plan to, and that includes transferring risk from to the plan sponsor to the employee.

A key way of accomplishing that, Schmidt indicates, is to offer employees a lump sum payment. In fact, they found, 57% of senior executives said they had amended their plans to make that option permanently available when employees retire or leave for some other reason. That’s 24 percentage points more than did in 2017. And a strong majority are glad they did: according to Schmidt, 76% of plan sponsors that offered a one-time lump sum payment reported that their organizations were satisfied or very satisfied with the results of having done so.