By Jonathan Theunissen, CFP® – Financial Planner 

Sixty-five is the age most associated with retirement, largely because it’s when Social Security payments in the US have historically begun paying out. When President Franklin D. Roosevelt signed the Social Security Act in 1935, the average life expectancy was only about 61 years.

Over the course of the 20th century, advancements in healthcare and living standards propelled a consistent rise in average life expectancy. Consequently, in many developed nations, average life expectancy surpassed 70 years by the latter half of the century, currently standing at approximately 80 years.

The Evolution of Retirement

Advancements in medical science throughout the past century have fundamentally altered the concept of retirement. It has shifted from a phase of “worker’s obsolescence,” where older, less productive employees were phased out to make room for younger counterparts, to a prolonged period of leisure—a post-work phase characterized by planned activities and relaxation, marking the culmination of a lifetime of labor and savings.

As retirement transformed into a stage of leisure, there emerged a desire to maximize this newfound freedom. This inclination toward early retirement stemmed not only from extended health spans but also from a societal emphasis on pursuing leisure years sooner. However, early retirement necessitates substantial savings to fund an extended period of leisure, prompting individuals to adopt a paradigm of “save diligently to retire early and enjoy an extended retirement.”

The Early Retirement Conundrum

Human beings exhibit remarkable adaptability to their circumstances, leading to a phenomenon known as “hedonic adaptation.” This psychological tendency results in a return to a baseline level of happiness despite significant life changes. Consequently, while the idea of retirement may seem idyllic during one’s working years, the reality of retirement often falls short of expectations, becoming mundane and less fulfilling.

In our retirement planning for clients, we run cashflow models until age 100 recognising the increasing likelihood of individuals living well into their nineties. However, the financial commitments required to achieve this may not be feasible, or appealing, for many, leading to a reconsideration of traditional retirement norms.

Navigating Retirement Options

Indeed, there is no longer a one-size-fits-all approach to retirement planning. Some individuals, having dedicated decades to their careers, find themselves reluctant to retire at 65, wishing to continue working and contributing to the workforce. Conversely, younger clients may envision a career punctuated by sabbaticals for rest, travel, or further education, necessitating careful financial planning to accommodate periods without income.

Others may opt for a gradual transition into retirement, reducing work commitments and living off reduced earnings while delaying the drawdown of investments. This phased approach allows individuals to maintain financial stability while enjoying a slower pace of life in their later years.

Ultimately, retirement planning should be tailored to individual preferences and aspirations. By envisioning the desired lifestyle and equipping oneself with the necessary financial resources, individuals can embark on a retirement journey that aligns with their unique goals and values.