The days of working for a single employer for your entire career and retiring with a comfortable pension are largely gone. The responsibility for accumulating a retirement nest egg now rests with individuals versus their employers.
Saving enough for retirement is challenging for many people, but an era of changing demographic trends, such as increased longevity and delayed marriage, can make this journey even more difficult.
According to a recent Ipsos survey, conducted on behalf of RBC Wealth Management-U.S., 53 percent of respondents heading into retirement say they're concerned about outliving their assets.
As Baby Boomers face increased longevity and Millennials more frequently delay marriage, there are several trends that call for a fresh way of thinking when it comes to retirement and wealth planning.
The modern family
Changing social norms are transforming the structure and look of American families. For example, in the 1960s more than 73 percent of all children were living with two parents in their first marriage. According to the Pew Research Center, that number has more recently dropped to 46 percent.
Modern family traits, such as remarriage, blended families, adult parents cohabitating with kids, and single-parent households are helping to drive this change. These factors create American families that look and function differently today.
Malia Haskins, vice president of wealth strategies at RBC Wealth Management-U.S. highlights some of the issues modern families may face when transitioning to retirement. She stresses the need for "assets to be properly titled, and for beneficiary designations to be kept up to date to ensure your retirement plans and your estate planning all work in harmony with each other."
"For blended families, asset titling, trusts, and other estate planning documents can be key to ensuring your wishes and legacy are carried out," notes Haskins. "Understanding the implications of beneficiary designations and asset ownership are critical here." She often suggests a pre- or post-nuptial agreement as part of the wealth planning process.
Paul DeLauro, senior vice president and manager of wealth planning at City National Bank, adds: "Estate planning for modern families must take into account the family dynamics that exist between the children from the couple's prior marriages. Avoiding future conflict among extended family after your death is of critical importance."
Women and longevity
Statistically, women are more likely to outlive their male counterparts, which means they will likely be left in control of the family's wealth before it's passed on to the next generation. They're also more likely to act as a caregiver during a long-term care event, and may require long-term care themselves.
All of these factors mean women face unique challenges in navigating their long-term financial path, preparing for risks, and marshaling the resources they'll need for retirement.
44%of women are most excited about spending time with family in retirement
A 65-year-old woman has a 50 percent chance of living to age 90 and a 25 percent chance of living to age 95. This compares to ages 87 and 92, respectively, for a 65-year-old man.
Addressing the issue of longevity is critical for all retirees, but especially for women. Here are some things to consider:
- Employer matches, catch-up contributions and other incentives may go a long way toward shoring up reserves for the future
- Continue to invest for the long-term. Maintaining an appropriate amount of growth investments may increase returns to help keep up with the rising cost of living
- A few extra years of pre-retirement income may have a large effect on reserves while also providing other benefits, such as health care and continued contributions to Social Security
- Personally enriching employment that offers employer-sponsored benefits may offer flexibility, income and fulfillment
- Reducing expenses with a lower-cost home or by moving to a low-tax state may reduce expenses as you age
DeLauro sees another issue women often face. "Too often, financial advisors focus on the husband when dealing with married couples," he says. "It's important women ensure they work with a financial advisor who understands their unique retirement and wealth-planning needs."
Haskins adds, "Women need to be strategic in how they set up their assets for retirement. Taking time out of the workforce to start a family or caring for aging parents are some of the issues that can put a strain on retirement assets."
Another trend affecting today's retirement is many people find themselves retiring earlier than they might have originally planned. Either for reasons of their own choosing, or for reasons beyond their control, 60 percent of retirees leave the workforce earlier than planned, with 61 percent citing health reasons for leaving early.
|Top retirement catalysts||Anticipated||Actual|
|Changes at work||27%||36%|
Another consideration for retirement planning is determining not only how to fund early retirement, but also how to bridge the gap between employer-sponsored health care and Medicare.
Health care options for early retirees:
- Consider transitioning to a high-deductible health care plan and leveraging the tax benefits of saving for future health care using an HSA
- Potentially the least-expensive option, you may register as a dependent until age 65, when you may transition to Medicare
- Consolidated Omnibus Budget Reconciliation Act (COBRA) coverage allows you to stay on your existing plan for up to 18 months. This may be expensive, however, as continuing coverage requires you to pay the entire premium
- Some retirees opt for private insurance, seeking flexibility. The ability to find a plan that works for you should be balanced with cost considerations
"Planning for the cost of health care in retirement is the biggest area where many early retirees fail," says DeLauro.
Adding in the costs of bridging the gap until Medicare and the longer time frame faced by early retirees may magnify these issues.
Additional considerations for early retirees include designing a retirement spending plan and a withdrawal strategy for investments and savings, deciding when to claim Social Security benefits and tax planning.
Taking the time to understand your starting point, while exploring your plans for the future, can help you navigate retirement with confidence.
City National Bank (CNB) is an affiliate of RBC Wealth Management and an indirect wholly owned subsidiary of Royal Bank of Canada. The report is provided for informational purposes only and is not intended to be either a specific offer by CNB to sell or provide, or a specific invitation to apply for, any particular financial account, product or service of RBC Wealth Management.