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My Two Cents

New face of retirement or work?

Chris Farrell Apr 20, 2009

Our image of retirement is still shaped by the early decades after World War II. The elderly poverty rate plunged thanks to Social Security. Older Americans gained universal health-care coverage with Medicare in 1965. Large corporations offered their workers defined-benefit pension plans based on a salary and years-of-service formula. It was in these years that retirees developed a distinct lifestyle captured by the mass migration to Sunbelt communities, traveling in RVs and bus tours, spending long mornings on the golf course, and other recreational pursuits. The postwar retirement system is one of the great social achievements of the 20th century.

Once again, the underlying economics of retirement are changing and the core difference between the old and new retirement revolves around work. The message in the Great Recession: Most of us will end up working well into our Golden years.

But the work-longer-into-old-age “retirement” strategy involves more than putting in more years on the job. It has implications for saving and work. It won’t simply change the way we think about retirement. It will change the way we think about work. That’s where the real revolutionary change lies.

In the new way of thinking about retirement, savings are a way to gain the flexibility to eventually reshape your career–it’s what funds career shifts throughout life.

Here’s a story i did that tries to get at this.

Against the backdrop of longer lifespans and a premium on brains over brawn, more employees are realizing that, in the long run, moving from a high-paying job they don’t like to a lower-paying job they enjoy may entail less of a financial hit than they thought. The key is that the lower-paying job may allow you to work longer than if you’d stayed in the more lucrative career, so over time the blow to earnings lessens. And those “extra” years of income allow a portfolio to compound much longer before it’s tapped. Says Ross Levin, a certified financial planner and head of Accredited Investors in Edina, Minn.: “You don’t need to save as much, and you don’t have to live off your portfolio for so long.”

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