It might very well become a win-win trend: As a result of the pandemic, some older Americans who were planning to retire are opting to remain in the labor force because they can now conveniently work from home, employer permitting.
Both the financial gain and scrapping an often arduous commute are key drawing points, Christine Benz, director of personal finance at Morningstar, tells ThinkAdvisor in an interview. She’s watching to see if an increasing number of pre-retirees jump on this now widely available alternative.
Retirement has undergone big changes over the last two decades. Essentially, it used to be: Stop working, receive a company pension, start collecting Social Security, hightail it to the links.
Now, semi-retirement has become a popular variation. Benz calls it “a phenomenon.” And, as she notes in the interview, people are choosing to define it in a variety of ways.
Others are trying “faux retirement,” a trial run to see how the life they envision in retirement might actually feel.
A disappointing turn of events for most any retiree, however, is continuing low interest rates. But people “have to make peace with the fact that the safer assets in their portfolio will have very low yields,” Benz argues.
They need to recognize that “the point of those safer investment assets isn’t return on capital; it’s return of capital.”
Benz started her career at Morningstar as a copy editor more than 15 years ago, advancing to mutual fund analyst, then to director of the mutual fund analyst team.
ThinkAdvisor recently had a phone interview with Benz, who was speaking from the Chicago suburbs.
Focused on retirement planning, the conversation eventually turned to how to plan and pay for long-term care. That’s when the co-host of the interview podcast “The Long View” brought up what she has dubbed a “come what may” bucket.
For wealthy clients, this extra bundle of assets can come in handy to draw from late in life.
Here are highlights of our interview:
THINKADVISOR: Have you noted any potential new retirement trends?
CHRISTINE BENZ: The pandemic has changed the nature of work for many people, who are now able to work from home, at least part of the time.
This is still in the early days, but I’m keeping an eye on people who might have otherwise been inclined to retire soon but plan to stick it out and work longer.
Especially from a financial standpoint, they’ve decided it makes sense to continue working since it might be easier for them: They don’t have to commute, and also, they can [relocate] to where they want to live.
They may be people in their early 60s who wanted to retire when they were 65 or so and also people who are post-65 and have decided “I think I can hang on till I’m 70” and potentially hold off on [claiming] Social Security.
Is the idea of semi-retirement gaining momentum?
It’s a phenomenon. People are dealing with it in different ways. There are financial reasons why they might have a hybrid semi-retirement.
In addition, many might derive a sense of purpose from their work: Continuing to keep a hand in gives them that sense of vitality and personal connection they may be hard-pressed to replicate without work.
Will these folks stay in the field in which they built their career?
They might continue that but now work in a scaled-back fashion.
Or maybe you’ll step out of that field and get a job that doesn’t tax you in the same way, like working at Trader Joe’s, where, at the end of your shift, you’re able to walk out and not think about work.
You spent part of your last sabbatical taking a “faux retirement.” Tell me about that concept.
It’s a trial run, an experiment, to see what retirement might actually feel like. It can be valuable to think things through living out your days in the way you expect to when you’re retired.
Afterward, you can figure out what you liked about that and what you didn’t like.
But that sounds similar to going on a vacation, rather than experimenting with an actual day-in, day-out way of life. Thoughts?
That’s definitely a risk to guard against: You need to recognize that retirement [likely] won’t be all golfing and going out to lunch.
It’s important to think about what your sense of purpose will be in retirement. You need to create a plan. I don’t think you’d want to wake up on Day 1 of retirement without thoroughly thinking about what your days might be like.
On the financial side of retirement, to what extent will ongoing low interest rates impact retirees?
Retirees have to make peace with the fact that the safer assets in their portfolio will have very low yields attached to them.
They need to recognize that the point of those safer investment assets isn’t return on capital; it’s return of capital. It’s the ability to spend those assets if you need them or if your equity assets are down.