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Changing Definition of Retirement: The Three P's

Advisors who think of retirement planning only as calculating a client's 'dollars per month' will limit their power to act in the new realities of retirement.

Michael M. Pompian, 03/19/2015

This month's article is the second in a new series called "Behavioral Finance and Retirement," which is intended to provide insight to advisors on the unique needs and financial behaviors of clients who are entering that period of transition called "retirement."

The reason I put retirement in quotation marks is that people today are not retiring they way they used to. The days of the retirement party, the gold watch, and sitting out one's years doing crossword puzzles and watching "Wheel of Fortune" are over for most people.

We've all heard the analogy that the baby boomers are like a baseball going through a garden hose. Well, the baseball is getting to the end of the hose, and it's not leaving without a bang! And before it leaves, it will be a financial force to be reckoned with.

To serve retiree clients properly, there are some key themes that advisors need to be aware of:

1. People are living longer than ever thanks in part to medical technology and better living habits such as diet and exercise. This is extending the length of time people are in a nonworking phase of life.

2. People's definition of retirement is changing, which is having a major impact on how individuals manage their finances.

3. In some cases, a certain segment of the population will have no choice but to produce some type of income after they leave the traditional workforce.

4. The responsibility of planning and investing for retirement has shifted in large part to the employee/retiree and away from corporations. As a result, behavioral biases significantly affect individuals who are entering or already in this phase of life.

The author is a freelance contributor to MorningstarAdvisor.com. The views expressed in this article may or may not reflect the views of Morningstar.

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