I have been doing a lot of thinking lately about the idea of retirement, and it has led me on a journey through the past, present and future of the concept. I refer to retirement as a concept because while it is deeply ingrained in our modern psyche, it is relatively new in terms of human history and has no guarantees surrounding it.
During my research, I uncovered some interesting facts and discovered some concerning trends that I think need to be realized and addressed by anyone thinking about and planning to retire.
When looking at this, it became clear to me that our forefathers likely never entertained the notion of retirement as we understand it today. I suspect that, to them, the concept of retirement would seem unnatural.
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Yet, here we are, in an era where retirement is not just a possibility but a widely anticipated and meticulously planned stage of life. But this transformation to where we are today didn't happen overnight. It was a complex evolution, marked by societal shifts, economic developments and, most critically, the profound extension of human life expectancy.
To consider the future, we have to look at the past
To understand where we are, we must first look back to see how things progressed over time. In ancient societies, people worked day in and day out to provide for themselves, as some still do today, but the difference between then and now is where we need to focus. Back then, people worked in trades that provided for their daily needs, such as farming, agriculture and artisan trades, which required ongoing attention and effort.
When I think about this, my mind goes to biblical times when people worked the earth, growing crops, herding animals and making things by hand. Yes, that was a long time ago, but that was the way it was done for thousands of years up until the industrial revolution in the late 1700s when people moved from fields to factories.
Fast-forward another 100 years to the late 1800s, the societal shift from family and community working together and supporting one another, to industrial jobs that often took people away from their homes required a different method for supporting elderly people.
Employers saw that people were working hard, and as they aged, they were unable to keep up with the demands of the job. This was when employers began offering pension benefits, the precursor to the modern retirement benefits.
Fast-forward again, to the 1900s, and we see the introduction of the Social Security system. This shift marked a departure from a model that placed personal responsibility, family and community at the heart of supporting the aging population to putting that responsibility on the government.
Change happens, and it happens fast
So, when we think about this shift over the last 250 years, we should recognize the speed of change that has occurred since then and not be callous to the fact that change is accelerating.
As I acknowledged before, I see retirement as a concept and feel that, based on what we know about technology and health care, retirement will most likely not look the same in the future.
In the 2000s, with Baby Boomers retiring, birthrates declining and the labor force shrinking, it seems that the current system may soon see another shift occur that will change how retirement is defined.
The Washington Post published an article in July 2023 that said, “For the past 50 years, the baby-boomer generation, born between 1946 and 1964, have worked through the American labor force like a big meal inside an anaconda. As they age, the workforce is becoming older than ever. As they retire, they’ll push the worker-to-retiree ratio lower than ever. Lower numbers of workers per retiree threaten the future of programs such as Social Security and Medicare, which support older Americans by taxing current workers. As the share of working Americans shrinks, that source of money will too.”
While this information may not be new, I believe that a significant number of people are currently experiencing a sense of malaise and simply don’t know what to think or do different.
Look at how pensions have played out
Under the current system of government benefits and knowing the math doesn’t work, I believe that how these programs are instituted will likely change. And if we are wondering how this plays out, we have already seen how this played out with pensions.
Pensions were once the engine for many people to be able to retire and are now rare outside of government for the same reasons. The math didn’t support the need, and they have been slowly replaced by defined contribution plans such as 401(k)s over the last 50 years.
The proverbial three-legged stool of pensions, Social Security and personal savings is slowly becoming a pogo stick of personal responsibility, which takes us back to the preindustrial revolution structure of personal responsibility.
However, I think the thought many people have is that the government will always bail the voters out, and I do think there is truth to that, but I also question how much longer our government can continue to spend money.
According to the Social Security Administration, benefits are projected to run negative in 2033, and according to the Congressional Budget Office, the national debt is projected to reach $52 trillion in 2033.
Life expectancy keeps getting longer
The problem of all of this is well-known, but the solutions at this point are all based on conjecture.
It is my strong opinion that those planning for their retirement must think differently than prior generations because the concept of retirement keeps evolving, which leads me to the topic of life expectancy. From the mid-1700s to the mid-1800s, life expectancy was age 35 to 40. At the time Social Security was established in 1935, life expectancy was 58. In 2023, it is 79.
New studies and research hypothesize that over the next 20 years, we will see incredible longevity-related breakthroughs that have the potential to add decades to your life-span.
There are many factors to consider when it comes to retirement, but in my opinion, nothing influences retirement more than the increase in human longevity. Retirement was once considered a necessary transition when a person was no longer productive in their work and had a short life expectancy once retired. Today, people are retiring when they are still fully capable of working, and that is where the chasm exists.
It ties back to the declining workforce where people are either contributing to society, or they are taking from it. And as we see advancements in health care and living conditions add decades to our lives, the longer we live, the longer our financial resources must last to maintain our lifestyle, and this reality is only widening the chasm. Retirement today is simply not defined the same as it was 200 years ago or even 50 years ago.
How you plan for retirement needs to evolve
There were many variables to what is being discussed that perhaps makes this an oversimplified interpretation of the history, but the point here is that retirement is a new phenomenon in human history and continues to evolve.
In this light, how retirement is defined could probably use a revision, because a lot of the thoughts and theories around retirement have traditionally relied on shorter life expectancies.
As you look to the future, you should be cognizant of the following three factors that contribute to what retirement means to give yourself the most opportunity for success.
1. Contribution
If someone began working at age 20, retires at age 60 and lives to age 100, they are retired for as long as they worked. They retired at halftime!
A paradox today is people work for decades, gaining experience and wisdom, then remove themselves from the workplace and stop contributing that knowledge to society.
By redefining the second half of your life, you could continue contributing to society, which could mean a second meaningful career or business. Instead of checking out, consider continuing to contribute, which can help enable you to continue to build wealth and lessen the financial stress on other assets.
2. Prevention
There are calculated risks and foolish risks, and regardless of where the line may be in defining either side, being wrong magnifies over time. If a plane is off course by just one degree, it won't be noticeable over shorter distances, but at greater distances, it can have a significant impact.
Longevity is the distance in this scenario, and as people live longer, they are spending more time in retirement, which has the potential of straining resources, increasing the possibility of falling short of your destination.
Popular opinion will often suggest taking on more investment risk to grow assets, but the opposite may be true when you add in sequence of returns risks, inflation, taxes, market volatility and medical costs to the equation.
Retirement is riddled with risk and is amplified the longer you live while taking money from your assets. Transferring risk away from you and finding ways to move things into your control helps to prevent unforeseen problems that put your retirement at risk.
An example of transferring risk is best illustrated using insurance. Insurance companies insure just about everything, and retirement income is one of those things they insure. Annuities may be a taboo topic in some circles, but if you want to establish your own private pension system, this is it.
Another way to transfer risk is to transition to tax-free assets. Taxes are set to increase in January 2026 when provisions in the Tax Cuts and Jobs Act are set to sunset, and I believe taxes are more likely to go up in the future than they are to go down. By positioning in tax-free assets, you reduce your exposure to future tax increases.
3. Delegation
Retirement planning is a team sport that requires careful planning, practice and coaching. Going it alone could be costly if mistakes are made and not recognized. I have found that professionals have a difficult time agreeing on what a retirement plan looks like and how it should be designed, much less someone trying to do it alone.
I find that the most successful people and companies will delegate research, projections and strategy to teams of people, then use that information to finalize their decisions. You can delegate the heavy lifting of a retirement plan to financial advisers, attorneys, insurance agents and CPAs, then use the collective wisdom of that team to implement a plan.
A well-established wealth management firm can assemble that team for you and can help bring decades of experience into the conversation. To learn how to assemble your dream team, visit www.skrobonjafinancial.com.
Embracing a new paradigm that sees retirement not as the final act, but as an intermission can shape a winning strategy for the future.
Securities offered only by duly registered individuals through Madison Avenue Securities, LLC. (MAS), Member FINRA &SIPC. Advisory services offered only by duly registered individuals through Skrobonja Wealth Management (SWM), a registered investment advisor. Tax services offered only through Skrobonja Tax Consulting. MAS does not offer Build Banking or tax advice. Skrobonja Financial Group, LLC, Skrobonja Wealth Management, LLC, Skrobonja Insurance Services, LLC, Skrobonja Tax Consulting, and Build Banking are not affiliated with MAS.
Skrobonja Wealth Management, LLC is a registered investment adviser. Advisory services are only offered to clients or prospective clients where Skrobonja Wealth Management, LLC and its representatives are properly licensed or exempt from licensure.
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