The changing landscape of retirement: What you need to know.

What retirement looks like now compared to even a decade ago is dramatically different. Understanding these changes is especially important because you want to protect and grow your wealth while also ensuring you have enough money in retirement. Variables like rising prices, longer life expectancies and the shift from pensions to 401(k)s have shifted how retirement works. Here’s a closer look at these transformations — and what that means for you as you plan your retirement strategy.

What’s the $1,000-a-month rule for retirement?

Determining how you’ll sustain your lifestyle in retirement can be tricky. One of the most well-known rules in retirement planning is the "$1,000 a month" guideline opens in a new window. This rule suggests that for every $1,000 a month you wish to spend in retirement, you should have about $240,000 saved up. This number comes from assuming a 5% annual withdrawal rate .

It’s an important benchmark for understanding the relationship between savings and retirement expenses — and the simplicity of this rule allows savers who want to set retirement goals to easily gauge their progress in order to maintain a desired standard of living. There are, of course, alternatives to this guideline, and it’s important to consider your age, income and retirement goals. To better understand how long your retirement savings will last, try using a retirement savings calculator.

The shifting retirement age

In the past, the retirement age was largely determined by the availability of pensions, with many workers retiring in their early 60s after receiving a steady pension income. However, the trend has shifted. The average retirement age has gradually risen, and people are now waiting longer to retire for several reasons opens in a new window, such as insufficient savings, the need for continued access to employer-sponsored benefits like health insurance, and more.

Historically, the official retirement age for Social Security benefits was set at 65, but now many people born in 1960 or later are choosing to delay their retirement until they are in their late-60s or even later. Why are people delaying retirement?

Several factors contribute to this delay. For some, it’s a financial necessity, as they continue to accumulate savings. For others, it’s the desire to remain active and engaged in their careers or personal endeavors. Additionally, people are living longer, which means they may need to work longer to build up sufficient savings for a longer retirement.

The reasons for delayed retirement are multi-faceted.

• Longevity: As medical advancements and healthier lifestyles extend life expectancy, many individuals are finding that they need to work longer to ensure they can support themselves through a longer retirement. The average life expectancy opens in a new window in the U.S. has now risen to 77.5 years, and many are living well into their 80s and 90s. The longer people live, the more they need to save.
• Shifting pensions to 401(k)s: The decline of traditional pensions has left many individuals responsible for saving for their own retirement. While pensions used to offer a guaranteed stream of income, the shift opens in a new window to 401(k)s and other self-directed retirement plans has placed the burden of funding retirement on individuals. This means many people are not as financially prepared for retirement as they once thought, leading to delayed exits from the workforce.
• Market volatility and inflation: Economic uncertainties, including inflation, market volatility and the global financial landscape, have also played a role in delaying retirement. Many individuals want to ensure that their investments have grown enough to weather potential downturns and rising living costs before they walk away from their careers.
• Health: Some may delay retirement because they find fulfillment opens in a new window in their work or hobbies; the loss of purpose that some feel when they no longer have a job can lead to depression. In fact, research from the Harvard School of Public Health found that people who retired were 40% more likely to have a heart attack or stroke than those still working. And, whether retired or not, as people age, they typically have more healthcare costs, which can lead to more out-of-pocket expenses. By staying in the workforce, you can take advantage of employee-sponsored benefits.

Self-employment and retirement

Many business owners and self-employed individuals may also find themselves in a situation of working later in life. The emotional attachment owners have with their business may be one reason for hanging on long past retirement age — or even not necessarily “fully” retiring but instead transitioning into semi-retirement, taking on consulting roles or part-time advisory positions that allow them to remain engaged professionally while enjoying more leisure time.

According to a survey opens in a new window of the U.S. market conducted by the International Business Brokers Association, around 80% of small business owners didn’t have an exit plan the year before they put their business on the market. And even 67% of larger businesses valued at $5 million to $50 million didn’t have an exit plan. It’s worth noting there can be multiple reasons for this, including establishing a succession plan or legacy, as well as the lengthy due diligence required in a sale.

The retirement plan that works best for you

The traditional idea of retirement — stopping work entirely at a specific age and living off a fixed income — has evolved into a more flexible concept. People are living longer and retiring later, and many are embracing a new vision of retirement that may involve continued work, travel or more.

Understanding how inflation, longer life expectancies, the decline of traditional pensions, and the shift to self-managed retirement accounts can impact retirement plans is crucial for those looking to secure their financial future. By embracing these changes and adjusting strategies accordingly, individuals can continue to enjoy their wealth while ensuring a comfortable retirement, no matter when they choose to step back from their careers. Your Commerce Banker can help you develop a plan that works best for your circumstances and priorities.