People are living longer and healthier lives, changing careers more frequently and experiencing the freedom and flexibility of less conventional career paths. With these workforce changes comes a shift in how workers plan for retirement.
In a few short years, one-fifth of America’s population will reach or exceed the average retirement age. Across industries, there is a shifting preference to come out of retirement, either through choice or necessity. These workers take retirement into their own hands in how they choose to continue working by capitalizing on two workforce trends: the encore career and the gig economy. While these trends are not exclusive to retired workers, they have had a direct impact on traditional retirement planning.
The Encore Career
Almost four in ten workers will have to work part-time in their retirement years, according to a new study, "The State of America’s Workforce," conducted by the Indexed Annuity Leadership Council (IALC). While it’s true that some workers will have to work longer than expected because of financial concerns, many keep working after 65 because that’s what they choose. A passion project or hobby can turn into a fulfilling second career -- and a second source of income -- in a worker’s golden years.
While additional income through a passion project is helpful, it can’t close the gap many workers have in their retirement income. According to the IALC study, workers’ number one goal in retirement planning is lifetime income; this goal is quickly followed by stability of income and principal protection. Many workers are currently relying on social security to meet these retirement needs, but having only one source of guaranteed income does not make for a balanced retirement portfolio.
Adding a product that provides lifetime income, stability of income and principal protection from market risk (plus a diversified portfolio) -- such as a fixed indexed annuity (FIA) -- could help solve the need for a steady source of income: a major reason many workers go back into the workforce through an encore career or the types of jobs that the gig economy has created. But a key difference between the encore career and the gig economy are the types of benefits that are offered.
The Gig Economy
Part-time work is a retirement trend through the emerging gig economy. Workers have left the traditional and structured confines of a 9-to-5 job to work independently as freelancers, contractors and entrepreneurs. Whether it’s driving for a ride-hailing service or serving as a consultant, future retirees will see more opportunities to continue working part-time, either because they enjoy the work or need another source of income.
The freedom these jobs offer is appealing, but the retirement benefits can be slim for gig jobs, with only 16% of individuals who exclusively work in the gig economy having access to an employer-sponsored plan. Workers are now faced with creating their own retirement plan. With this shift in the way workers not only plan for retirement but continue to work after retirement, the approach to retirement planning is changing.
The Do-It-Yourself Retirement
Of workers who said they were unprepared for retirement in the IALC study, more than a third also noted that they didn’t have access to traditional retirement products or plans -- which means a “do-it-yourself” retirement for many. Employers can provide two things, without incurring a hard cost, to help their encore and gig workers prepare for retirement: access and education.
Access to traditional retirement plans is shifting with the changing way American’s are working. Automatic enrollment is no longer the only solution to providing product information. Retirement products such as bonds, CDs and FIAs can help meet the income planning needs for pre-retirees.
In addition to product information, pre-retirees taking retirement into their own hands have tools available to help them get to where they want to be in their golden years. Using online calculators and budgeting tools can let pre-retirees see the gaps they need to cover.
The do-it-yourself retirement doesn’t mean that pre-retirees are alone, however. Seeking out advice from employers, financial professionals, community-based seminars or even their own banks can give them the guidance they need to plan for retirement. The time is now for these resourceful workers to take retirement planning into their own hands and make sure they have the income they need to enjoy their golden years.
