One of the overlooked aspects of the retirement crisis is that retirement is an invention, one that has to be reinvented to suit new generations. What we think of as traditional retirement was codified in the 1930s when the Social Security Administration set normal retirement age at 65.
Today, we are living longer and are healthier than people in the 1930s. And while the retirement industry and government regulators are trying to build new structures that makes sense for today’s reality, millions of people approaching retirement age are responding by inventing a new phase in life, a transition period between their career and full retirement.
In his book, The Big Shift, Marc Freedman calls this transition period an encore career, a later-in-life second career that is often in a new field. He calls them a second act of life that delivers “passion, purpose and a paycheck.” In addition to personal satisfaction, encore careers can help improve an individual’s retirement finances by delaying the need to drawdown retirement savings – and even allowing more time to add to them.
We recently met with Marc for his insights into what he describes as a social movement.
How is an encore career different from what we currently think of as retirement?
In many ways, it’s the opposite of retirement. Rather than exiting the work force and going off into seclusion, people are re-engaging. They’re choosing a second act that draws on their interests, their accumulated skills. For many people, their Encore career turns out to be the career that they most want to be remembered for.
How widespread are encore careers?
We did a survey that found 9 million people were in encore careers, but 31 million more said it was a priority to move in the same direction. So when you bring those two numbers together, 40 million people are part of this movement.
Why is it happening now?
I think we’re catching up to reality. The old model really was that you were going to live to about 70 to 75. You left work at 65, and you got a well-deserved rest at the end. But you can’t stretch that model to lives that are lasting 85, 90 or 100 years.
I think what we’re seeing is a new life pattern that’s geared to much longer lives. That’s going to require a different distribution of work and leisure than one where you load up all of your work in a 30-year period and then get this balloon payment of vacation for 30 years. That’s not financially sustainable. So I think people in the front end of this transformation are fashioning a new stage that splits retirement into two pieces – an encore career followed by full time retirement.
That has the practical benefit of reducing the number of years that you’re retired.
That’s right. They have another act that helps balance their finances and provides additional security as well as meaning.
Do you see financial advisors taking a more active role in helping people shape encore careers?
Financial advisors can provide sophisticated advice about how to plan for this transition period, or how to accommodate a longer working life at what may be a lower salary. We’re also starting to see a lot more creative flexibility from employers. AARP, for example, lists of the 50 best employers every year who are engaged in flexible practices that are really well suited for people at this stage of life.
You know, we hear about heroic transformations where one day you’re working in a bank and the next day you’re opening up a vineyard without ever breaking a sweat. It doesn’t really work like that. It takes work and planning. The good news is that most of the people that I’ve seen who found their footing in this stage of life found deep fulfillment doing something that really draws on their mid-life experience.
For more on Marc Freedman and Encore careers, go to Encore.org.
Chip Castille, Managing Director, is head of the BlackRock US Retirement Group. You can find more of his posts here.
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