ACCOUNTS & TRADING
PREMIUM CONTENT & TOOLS
Fidelity Institutional Asset Management®
ACCOUNTS & TRADING
PREMIUM CONTENT & TOOLS
Posted: 5/30/2019 by Fidelity Viewpoints
When will you be ready to retire? Particularly if retirement is still far away, you're probably thinking in terms of dollars—how many you will have and how long they will last. But new research finds that for many people, the decision to retire is not just about money. It's about life, and the freedom to enjoy it.
That's the conclusion of an extensive survey of over 10,000 pre-retirees and recent retirees. The online survey was conducted by Fidelity Investments in collaboration with the Stanford Center on Longevity and Greenwald & Associates,1 and only included respondents who believed they had some control over if and when they would stop working full time.
While financial and work-related factors are the primary reasons people continue to work, with eligibility for Medicare and Social Security as key factors, the survey also finds that it's often nonfinancial factors like family, health, and lifestyle that ultimately cause people to pull the trigger to retire. Among retirees, 72% chose leisure as a very or somewhat strong reason to retire, 64% pointed to stress at work, and 62% cited a desire to spend more time with grandchildren.
"We've seen a shift in values as people near retirement," says Eliza Badeau, director of Thought Leadership at Fidelity. "Many people seem to desire freedom over money. It's less about the money and more about spending time where it matters most to them," she adds. "Most people say they look forward to the freedom that retirement brings, such as spending time with their family or doing hobbies they enjoy—ultimately trading in that job stress for leisurely interests."
The Fidelity research team found that there are three distinct phases of "preretirement" that many pre-retirees go through, assuming they will have some control over the actual timing of their retirement. The phases are not age based, but rooted in life stage.
Fidelity Decision to Retire Research; see footnote 1.
The emotions connected to retirement shift along the way too. In early preretirement, some people are stressed about their ability to live comfortably in retirement. But by the time they reach late preretirement, most feel more financially secure and excited about a new chapter. Among recent retirees, those who left their primary career within two years of participating in this survey, almost 80% say it's easier than they thought to live comfortably in retirement and 85% say it's the most rewarding time of their lives. Only 10% say they are worried about being bored.
Here are a few tips to make sure you are ready—both financially and emotionally.
Rev up your retirement savings. In our survey, health care costs, general economic conditions, and lack of confidence that pre-retirees could make their money last throughout their retirement were the three most important financial factors in the decision to keep working. If these factors resonate with you, consider working with an advisor on the following steps to help boost your retirement readiness:
Make sure you plan for health care costs and your health too. Remember that Medicare does not kick in until age 65 and, even then, it does not cover all health care costs in retirement. Fidelity estimates that a 65-year-old couple should expect to spend $285,000 over the course of retirement on health care costs on average.2 So you will want to factor in those costs as well. If you have a health savings account at work, it can help you save for health care costs in retirement. Also, consider purchasing long-term-care insurance.
Perhaps most importantly, try to stay healthy and attempt to manage stress. Among pre-retirees in our survey, 55% said stress was a "strong" or "somewhat strong" factor in their decision to leave the workforce. Among retirees, it was 64%. Know the causes of stress in your life (poor health, demanding job, new technology, terrible commute, etc.) and develop coping strategies. When the stress of work clearly begins to negatively affect your health (despite efforts to find ways to manage the current challenges), it may be time to accelerate your transition to retirement—and preserve your peace of mind.
Finally, remember that well-being in retirement is not just about money, or even intellectual stimulation. As pre-retirees and retirees told us, it's also about the freedom to do what you want, when you want.
Think about what is important to you, and how you want to spend your time. Maybe it's traveling, or reading, or fishing, or jumping out of a plane, as one 90-year-old recently did. Maybe it's starting a new business, consulting, mentoring others, or volunteering. Or maybe it's spending more time with your spouse or your kids and grandkids. Your financial advisor can help create a plan based on your personal goals for retirement.
Fidelity Decision to Retire Research; See footnote 1.
While working full time, you probably did not have a lot of time for reflection to think about what's next. Assuming you've achieved financial freedom as a new retiree, you'll likely deal with a lot of emotion as you begin to see yourself in a new light and ask: "What do I want to do now? What is my passion? How do I want to spend my time?"
One way to ease the transition to retirement is to think about this new phase of your life as a sabbatical, advises Chris Farrell, author of Purpose and a Paycheck. "Older adults want a break from the demands of a job. They retire. Yet they often return to the workforce within a year or two. In fact, about 40% of Americans age 65 and older who are currently employed were retired at some time in the past," says Farrell.
He adds: "In other words, consider taking a sabbatical to recharge your batteries and think through what you want to do next."
Part-time employment and flexible jobs are popular. So is nonprofit work, especially for those with careers in for-profit companies and professional organizations. These encore careers typically come with a smaller paycheck, but the mission or cause of the organization is meaningful. Entrepreneurship and self-employment are attractive to many people at this stage of life.
"A key to success is your willingness to experiment, to see what jobs might intrigue you and steering clear of pursuits that leave you cold," says Farrell. "You'll want to focus on understanding the skills and knowledge you've developed over the years. Skills are very different from jobs and job titles. Adopt an entrepreneurial mindset when it comes to exploring what comes next, even if you've never considered starting your own business before."
Tip: Experienced workers usually find new jobs and opportunities through their network, says Farrell. During your sabbatical, talk to the people in your network. Ask them to identify your top skills and interests. Make a list. What do they see you doing next? Ask them to tap into their network to set up informational interviews for you during your sabbatical. Remember, most jobs come from a referral rather than a resume.
You may be ready to stop working, or you may just be thinking about doing so financially and emotionally. Whichever is the case, consider working with an advisor to help shape your strategy for Social Security, health care, and cash flow in retirement. It can help you get where you want to go. For many people, the decision to retire is not just about money. It's about life, and the freedom to enjoy it.
1. The Fidelity Investments Decision to Retire Research represents insights from a series of in-depth interviews conducted in Boston, Chicago, and San Francisco and from an online survey of more than 12,000 defined contribution plan participants recordkept by Fidelity, ranging in age from 55 to 80 across all industries and income levels, who felt they had some control over their decision to retire. The research was completed in 2015 by Greenwald & Associates, Inc., an independent third-party research firm. Fidelity also worked in collaboration with the Stanford Center on Longevity on the study.
2. Estimate based on a hypothetical couple retiring in 2019, 65 years old, with life expectancies that align with Society of Actuaries' RP-2014 Healthy Annuitant rates with Mortality Improvements Scale MP-2016. Actual assets needed may be more or less depending on actual health status, area of residence, and longevity. Estimate is net of taxes. The Fidelity Retiree Health Care Costs Estimate assumes individuals do not have employer-provided retiree health care coverage, but do qualify for the federal government's insurance program, Original Medicare. The calculation takes into account cost-sharing provisions (such as deductibles and coinsurance) associated with Medicare Part A and Part B (inpatient and outpatient medical insurance). It also considers Medicare Part D (prescription drug coverage) premiums and out-of-pocket costs, as well as certain services excluded by Original Medicare. The estimate does not include other health-related expenses, such as over-the-counter medications, most dental services, and long-term care.
This information is intended to be educational and is not tailored to the investment needs of any specific investor.
Keep in mind that investing involves risk. The value of your investment will fluctuate over time, and you may gain or lose money.