retiring baby boomers face reality check
10 Apr 2012
Retirement can be an exhilarating time, but baby boomers are being warned to think beyond the celebrations; new hobbies and world travel.
ipac's resident retirement planning expert, John Dani recently appeared on the Sky News Perrett Report and said that retirement for baby boomers has been likened to a 'new midlife crisis' and with the first wave of boomers turning 65 from last year – they need to be 'aware and prepare'.
Some of the competing challenges include ailing parents, financial shortfalls and emotional upheavals. “It’s a minefield,” Dani says, “We hear a lot about planning for the financial side of retirement and that’s obviously very important – but the emotional side can really bring people unstuck.”
Dani says there are four phases of retirement, each with unique emotional and financial issues:
- Defining phase: distinguished by serious consideration of retirement; sometimes a move to part-time or consulting work; a need to plan to make money last and determine how much is enough.
- Active freedom phase: distinguished by a lack of work; health and vigour at a peak; lifetime dreams become a focus; more time spent with family and friends; reliable source of income required; lasts one month to about six years.
- Consolidation phase: distinguished by a quieter, more domestic lifestyle; less consumer spending and increased health spending; concern about current and long-term health; circle of friends and activity needs to be kept strong; can last up to 20 years.
- Dependency phase: distinguished by a need for aged care contingencies such as home nursing or assistance, or a move to an aged care facility; most spending made on health; less involvement in daily financial affairs but focus on maintaining maximum pension and entitlements and estate planning.
We know the boomers are planning for retirement; but many only think of the active freedom phase – the holiday, the new car, the golf and tennis,” Dani says.
When the euphoria dwindles, there are big issues to deal with in the consolidation phase; including financial pressures; a change in relationships between partners (who now see each other all the time), and boredom or a lack of social connection because work has ended.
Through its role as a financial advisor to thousands of pre-retirement baby boomers, Dani and his team have identified the consolidation phase as one of the toughest.
Boomers face four key challenges at this stage, according to Dani:
- Parents are living long lives, so the expectation of an inheritance to fill the gap between goals and financial realities is becoming doubtful;
- Boomers haven’t thought beyond the fun part of retirement and what will keep them happy for a long time. This makes them illprepared when reality sets in.
- Geographic distance is coming between retirees and their families (Dani notes that retirees using social networking seem happier)
- Boomers have been forced to work longer, or tighten purse strings because of the global financial crisis.
Dani says good news for boomers, is that early planning which encompasses all aspects of retirement means these challenges can be thought about and worked through. “We look for a more complete style of retirement planning.”