The New Retirement

By Karen Hube
SmartMoney.com

Steve Perry of Annapolis, MD., recently completed his degree in counseling and psychotherapy at Johns Hopkins University. He enrolled as a night-school student two and a half years ago because he was looking for a career that not only would be financially and spiritually rewarding for him but would also make a difference in other people's lives.

Perry is 55 years old, and he hopes to complete a few licensing requirements and hang out a shingle for private practice by age 61 -- just in time to retire from his job as a senior vice president of the International Association of Food Industry Suppliers.

For a growing number of people in their 50s and 60s, retirement has become a time to reinvent themselves. A 2005 study by Merrill Lynch found that 76 percent of people ages 40 to 58 say they plan to work in retirement, and 56 percent say they want to try something completely different.

Whether that means launching a new career, becoming a consultant in a familiar industry or entering a new phase of volunteerism, the driving force behind the trend is a strong desire to stay active and socially connected and to spend time on meaningful pursuits -- without giving up the traditional pleasures of travel, leisure and time with grandchildren.

"The notion that you retreat after you retire is giving way to the idea that retirement is a new active chapter in an active life," says Ellen Freudenheim, author of "Looking Forward: An Optimist's Guide to Retirement."

This is a major departure from previous generations of workers, who, for the most part, retired by quietly exchanging their jobs for a more leisurely life. Today people who are nearing the traditional retirement age of 65 are generally healthier than their parents were at the same age.

Theirs is a generation that has been obsessed with fitness -- 6.8 million Americans 55 and older had gym memberships in 2003, compared with 4.9 million five years earlier, according to American Sports Data. They've been more active throughout their lives and don't see getting older as any reason to slow down.

Quite the contrary, it may offer an opportunity to speed up. Pat Lenny is 63 and is training for her tenth marathon.

"I ran my first one at 57," says Lenny, a family-practice attorney in New York City. "I had never run more than five miles before, but I was inspired to do it after watching the New York City Marathon, and there didn't seem to be anything stopping me."

Indeed, as if a 26-mile run weren't enough, Lenny says her daughter has since turned her on to biking, and she's taking sailing lessons.

Lenny has plenty of time to master all her new pursuits because people are also living longer. The average life expectancy today is 81 for a 65-year-old man and 84 for a woman of the same age. For a 65-year-old couple, there is a one-in-four chance that one of them will be alive at age 95.

"Retirement used to be synonymous with old age, but these days people might have a couple of decades in retirement before they start to decline physically," says Deborah B. Smith, associate professor of sociology at the University of Missouri-Kansas City.

Of course, supporting these longer, more active lives will require more savings. Previous generations could count on receiving a lifetime annuity from a pension, but these days only about 20 percent of workers have traditional pensions.

Instead, retirees will have to rely on their independently funded IRAs, 401(k) accounts and other investments along with Social Security. But the relative contribution of Social Security is shrinking, thanks to rising Medicare premiums, which are automatically deducted from Social Security checks.

On the upside, even the most pessimistic forecasts about Social Security's solvency predict full payouts through 2041 -- good news for boomers. In addition, 85 percent of eligible boomers participate in 401(k) plans, the highest participation rate of all age groups.

Still, many worry that they're not going to have enough savings to support their lifestyle through a long retirement -- all the more reason to postpone it. The payoff for continuing to work after 65 can be significant, both financially and in maintaining a vibrant quality of life.

Using a combination of Social Security and income from working -- even part time -- for an extra five years can reduce the pressure to draw down savings and significantly increase your wealth.

Despite all these worries, if you ask people why they plan to continue working in retirement, few claim it's because they need the money. Some 58 percent of those ages 50 to 59 say they want jobs that contribute to the greater good, and 60 percent say they are motivated by staying involved with other people, according to a 2005 study by Civic Ventures and the MetLife Foundation.

"Working will ease the financial burden, but it's also about maintaining a social network that we've built through work," says James Diehl, a financial planner at The Hartford.

But will there be enough jobs -- meaningful or not -- for the 77 million-strong generation of baby boomers?

Yes, says John Challenger, executive director of Challenger, Gray & Christmas, an outplacement firm in Chicago. If the large population of older boomers retires on schedule, there will be gaping holes in the labor force that the next generation of workers isn't big enough to fill.

Over the decade ending in 2010, the number of workers age 55 and older who are destined for retirement will rise by 47 percent, while the population of workers between the ages of 25 and 54 will increase only 5 percent, according to the Society for Human Resource Management.

The resulting labor shortage will be a powerful incentive for employers to encourage older workers to stay on the job. Some companies are already creating programs to keep and recruit them, offering technology training and providing on-site medical screenings, opportunities for job sharing and flexibility in schedules.

Others are adjusting their labor needs so they can rehire retirees as part-time or temporary workers; 61 percent of 232 large companies surveyed by Mercer Human Resource Consulting have these so-called phased-retirement plans in the works.

The really smart firms will get creative about recruiting. Consider Home Depot: The national chain of home-improvement stores is hoping to attract older workers who have seasonal residences by allowing them to move their jobs between stores located near each of their homes. That way someone who splits his time between Maine and Florida can have a year-round job with the company.

That's not to say the marketplace will be completely transformed. Most recruitment initiatives will be concentrated in sectors expected to have the greatest labor shortages -- government, energy, health care, education, retail and service.

But for now, the predominant policy among employers is to encourage older workers to retire and then to replace them with younger ones. But as the supply of new recruits diminishes, companies will be forced to change these attitudes, and a number of organizational and policy disincentives will have to be overcome.

Not an easy task given that many employers continue to see older workers as inflexible, slow to keep up with changes in their industries and more expensive due to their increased health care needs, according to a 2003 study on older workers by the Society for Human Resource Management.

In fact, older workers are far more expensive to keep on the payroll. For 60- to 64-year-olds, the average annual health cost to employers was $3,579, compared with $1,300 for 30- to 34-year-olds, says Richard Johnson, a principal research associate at the Urban Institute in Washington, D.C. And these costs are not diminished when workers hit 65 years old and are eligible for Medicare.

In addition, some workers are simply squeezed out of their jobs by limits on benefits. Many employees of public school systems, for example, max out on their pensions after about 26 years on the job.

"It doesn't make financial sense to work any longer because they'll get practically the same as if they quit after 25 years," says Denise Snodgrass, assistant director of the North Carolina Center for Creative Retirement.

Attitudes should begin to change as the people who hold decision-making positions in corporations and government get older and are more concerned about their own needs in retirement.

"Some of the boomers will be in influential positions, and they will make it possible for people to work however they want," says Nancy K. Schlossberg, author of "Retire Smart, Retire Happy." "They can institute changes so older workers don't just float away."

Even nonprofits are growing at a rate that will create strong demand for retirees who choose to work as volunteers. The number of tax-exempt nonprofit organizations registered with the IRS shot up from a million in 1995 to over 1.5 million today, according to GuideStar, a clearinghouse for information about nonprofits, in Williamsburg, Va.

A lot of these groups would grind to a halt without retirees like Ed Jenest. When he retired at 58 from his middle-management job at Abbott Laboratories in Irving, Tex., there were two things he knew he wanted to do: live on the East Coast and give something back to the community.

The first wish was easily solved when he and his wife, Vicki, moved to Asheville, N.C. Once settled in their new home, it didn't take long for him to find work he could attack wholeheartedly -- helping alleviate a disastrous shortage of organ donors. There were 90,000 people on the transplant waiting list and almost no educational programs to increase awareness of the crisis.

In 2001 Jenest created the nonprofit Western North Carolina Organ and Tissue Donation Initiative. Since then, he has trained about 70 people to organize awareness programs for civic groups, schools and businesses. He spearheaded a move to pass state legislation that would provide organ donor groups access to Department of Motor Vehicles databases, which list people's intent to be donors. North Carolina Governor Michael Easley named him to a 15-person trust fund commission that disperses money to organ donor groups.

"It seemed like a good fit for me, but I never could have predicted I'd be sitting in the governor's office as he signed legislation," says Jenest, now 61. "This is very meaningful to me, and it's on my own time."

Both Ed Jenest and therapist-in-training Steve Perry had a good idea of what their goals were before they retired. And their decisions were driven as much by lifestyle choices as by financial considerations.

Too many people don't start thinking about it until they're about to take the plunge. The time to start planning is in your 50s.

"The focus is usually on developing a financial plan, not a life plan," says Dorothy W. Cantor, author of "What Do You Want to Do When You Grow Up?"

"People have fantasies about what they're going to do without understanding the reality," says Ron Manheimer, director of the North Carolina Center for Creative Retirement. "They'll say things like, 'I'm going to get into art,' only to find it's much harder work than they expected."

Or they'll decide they want to teach in retirement because they have years of experience and knowledge to pass on to future generations. "But it's not all about what you know," Manheimer says. "It's a lot about classroom management. Not everyone has the patience to deal with the discipline problems of difficult kids."

So before you take that leap, sign up for a class in your area of interest. If you want to be an entrepreneur, take a class on starting a business at a community college and see if it's really for you. Or if you want to sell real estate, take a real estate course.

"See if the realities meet your fantasies," Manheimer says. Meet with people in the field to get a better understanding of the day-to-day details of the job and how you could qualify for a position. And aim to capitalize on your skills and interests wherever possible.

For Perry, retirement was an opportunity to fulfill a lifelong interest in behavioral sciences. "I figured I had plenty of time for a whole new chapter in my life," he says. "I am in excellent health and have good genes. I can easily see myself living to 100, and that means I have 45 years to go. I'm just a babe in the woods."

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