Retirement unfolds in five stages for boomers
Retirement used to be so simple.
"Two years off work, and then you died," quips Drew Denning, vice president of
retirement services for Principal Financial Group.
As longevity stretches toward once-unthinkable lengths, many of America's 79
million baby boomers are facing not a brief retirement but 20, 30 or 40 more
years of life — the longest retirements that any U.S. generation has yet
"For a 65-year-old couple today," Denning says, "there's a 45% chance that one
of them will make it to 95."
Sounds nice. But many people simply can't afford a much longer life in
retirement. Savings rates are historically low. As the oldest boomers turn 60
this year, many are realizing they haven't saved enough to support themselves
for several decades more.
"The top one-third of the boomers will have lots of choices, and the bottom
one-third will be working until they drop just to keep food on the table," says
Paul Hodge of the Harvard Generations Policy Program at Harvard University. "The
middle third will muddle along."
Still, most of this generation envisions an "active retirement," with a chance
to remake their lives through new careers and interests.
"Americans have this overwhelming optimism about retirement," says Geoff Brooks,
senior vice president of retirement services at HSBC Bank. HSBC recently
surveyed 21,000 people in 60 countries on their views of retirement. Americans,
Brooks says, ranked No. 1 in viewing retirement as a "whole new chapter in
life," with freedom, opportunities and more time for family and friends.
In contrast to many previous generations, most boomers don't see retirement
starting and work stopping abruptly at 65. They see on-again, off-again work
mixed with periods of leisure. Some will work because they want to, many others
because they need to.
"The people in their 50s now are the most educated, most tech-savvy generation
in our country's history," says William Frey, a demographer and visiting fellow
at the Brookings Institution. "They'll want to stay engaged in their work and be
Many boomers yearn for the kind of life Jeff and Nelda Manna of Las Vegas are
enjoying. The Mannas retired early, seven years ago, when Jeff was 52. Having
sold the company he owned, they had plenty of money but nothing new to do.
"We were in our parents' and grandparents' retirement rut," Jeff says. They
puttered around the house, went out to dinner, hung out with old friends.
Eventually, the Mannas sold the house and moved into an adult "active"
retirement community in Las Vegas, and Jeff bought his first Harley-Davidson.
Now he has two.
"It's always been a dream," he says. "But I never would have done it if we'd
stayed at home."
When life spans were shorter, there were fewer "phases" of retirement seen by
social scientists and financial planners. Basically, there were two: "Go" and
In the first phase, you took maybe a couple of vacations, visited your grandkids
and messed around in the a) garage or b) garden. Then your health declined, you
slowed down and, well, you know the rest.
Now, demographers and others see at least five stages of retirement as the
longer-living elderly continually redefine themselves and the period known as
Fifteen years before retirement, many people start fantasizing about what it
could be like. Those who can afford to move once they retire may "shop" for a
place to live or a lifestyle they want, says Dave Schreiner of Pulte Homes,
which develops retirement communities through its Del Webb subsidiary.
"People take a look at themselves," Schreiner says, "and say, "Gee, I could live
40 more years. How do I want to live?' "
Ken Dychtwald, co-author of The Power Years: A User's Guide to the Rest of Your
Life, calls this phase "imagination." Working with Harris Interactive, a polling
firm, and Ameriprise, a financial services firm, he surveyed 2,000 people, 40 to
75 years old, on the "emotional" aspects of retirement. He identified five
phases of retirement, including the years that precede it.
In this first phase, his study says:
•65% have high expectations of adventure.
•53% have high expectations of empowerment.
•72% are saving money.
•But only 44% says they're "on track" for saving.
The Center for Creative Retirement at the University of North Carolina at
Asheville has started a "life transition program for boomers" to help them
figure out what they want to do in retirement.
Ronald Manheimer, executive director of the center, says, "People are thinking,
'How can I create this wonderful lifestyle?' "
About one-third have a plan for retirement, he says, about one-third are working
on it, and one-third are "completely clueless."
Female boomers, in particular, could have a rough ride in retirement, says Hodge
of Harvard. They were likely paid less than men and worked fewer years if they
were raising children. Married women can claim their husband's Social Security
payments once their husband retires, becomes disabled or dies. Divorced women
can claim their ex-husbands' payments, if higher than their own, only if they
were married 10 years or longer.
Women have saved less for retirement, too, according to a Hewitt Associates
study of 2.6 million Americans who are eligible for a 401(k) or other
defined-contribution plan. At the end of 2005, women had a median sum of $18,130
in a 401(k), vs. $40,730 for men.
Up to five years before retirement, Dychtwald sees a second phase:
"anticipation." About 80% think they're "going to have a fantastic time," he
says. " 'Boy, as soon as I get out of work, I'm going to be soooo happy!' " His
•72% are putting money into a 401(k); 81% have a separate savings account for
retirement, and two out of three have figured how much income they'll need in
retirement. But savings in 401(k) plans are slim; according to Hewitt
Associates, the median balances as of 2005 were only $27,100, and one-third of
employees who were eligible did not take part in a 401(k).
•67% envision "flexibility," with periods of work and leisure.
Some people take classes to investigate interests they might want to pursue in
retirement or to brush up skills for post-retirement work, says Manheimer of the
Center for Creative Retirement.
Americans start to worry more about losing their mental capacity than their
physical health, according to the HSBC survey. Fears about paying for health
Forty-one percent say paying for health care is the hardest thing they'll have
to face in retirement, according to Dychtwald's study. (Next are loss of income
and loss of social connections at work.)
Some feel a twinge of concern: Who will I be once I don't work? According to
•22% say they expect to feel a sense of loss after retirement.
•18% expect to feel "emptiness."
And now: The Big Day
One day you work. The next day you don't. "For most people, it's the most
liberating day of their lives," Dychtwald says. His study found:
•78% say they're enjoying retirement a "great deal."
•89% say they have enough to keep them busy.
•72% say their finances are "on track."
Schreiner of Pulte Homes calls this the "implementation" phase. People who have
decided to move may do so now. They think: "I know what I want. I know what kind
of climate I like and what activities suit me," he says.
But the euphoria is about one year, Dychtwald says, until ...
Reality sets in
Relatively young and in good health, some retirees bust loose: 73% of Americans
say travel is the No. 1 thing they want to do, HSBC's survey of retirees found.
"There's a complete rejection of the slow-down, rest-and-relax version of
retirement that their parents had," says Brooks of HSBC.
But the next two to 15 years are a phase Dychtwald calls "reorientation."
Optimism dips. The proportion of people who enjoy retirement sinks from nearly
80% in the year after retirement to below 65%.
"They don't know what they ought to be doing," Dychtwald says. "Almost a quarter
of retirees are absolutely befuddled."
Financial woes are one factor. A separate study found that nearly half of
today's workers won't be able to fund a comfortable retirement if they keep
saving at their current rate. The Center for Retirement Research at Boston
College found that 43% of working households in 2004 were at risk of having too
little income to fund retirement. That's up from 31% in 1983.
In this phase, retirees tend to fall into four "emotional" groups, Dychtwald
says. (See graphic.)
They range from take-charge people who reinvent themselves (19%) to carefree
retirees content to just slow down (19%) to people still trying to figure out
what to do (22%), to those struggling and likelier to feel unhappy (40%).
At least 60% of retirees in this phase are struggling to figure out how to
achieve a happy retirement.
Making peace with retirement
About 15 years after retirement, people tend to "come to terms" with retirement,
Dychtwald says. They're sad more, though, as they begin to confront the end of
their lives or their loved ones' lives.
"A spouse may die," says Schreiner of Pulte Homes. "Things stop working well;
it's happening physically, maybe financially."
This "final" stage of retirement can be crushingly expensive if long-term care
in a nursing home or at home is needed. Money earned from post-work work may be
gone. In many cases, retirement savings have been erased.
As their health fails, some have to move to assisted-living facilities or in
with relatives. Medical costs soar.
Diseases with prolonged declines, such as Alzheimer's and diabetes, hit this age
group hard. That can cripple finances.
"Most people dread ending up in a nursing home and having to spend down, until
they use up all the resources they saved all their lives just to qualify for
Medicaid," says Stuart Guterman of The Commonwealth Fund, a non-profit that
studies health care.
"The single greatest fear is illness and the inability to pay for it — it's
three times more frightening than dying," Dychtwald says. "The economics of
illness can really knock people out of the box."
This is the old "No Go" phase.
And despite longer retirements (for most), more opportunities for growth (for
some), adventure (for some), travel (for some), reinvention (for some) and
ability to pay for health care (for some), this phase plays out the same for
Your health declines, you slow down, and well, you know the rest.