Monday, September 7, 2009

Defining your Retirement: How that can help you to plan it?

Retire (verb): 1) to withdraw, as for rest or seclusion 2) to move back or away; recede 3) to withdraw from one's occupation, business or office; stop working 4) to fall back or retreat, as from battle.

But what is your personal definition or vision of retirement?

It may not square with any of the above definitions, but one thing is for sure, the definition is changing for most Americans. Baby boomers who make up almost one-third of the U.S. population are turning 50 at the rate of 10,000 a day. This demographical onslaught is just one factor that will continue to change the paradigm of retirement.

The June 14 issue (2004) of U.S. News & World Report defined the emerging vision of retirement in the following excerpt:

"Retirement as we know it, is dead," said Ken Dychtwald, president of the consulting firm Age Wave and author of many books on baby boomers and aging. "It's no longer an end, it's a turning point. A chance to take a break and then reinvent yourself. Retirement is morphing into a rich and enriching third act of work, education and leisure. It still takes a good deal of money and planning to pull it off. But, as the boomers are about to prove, there is much more to having a life later in life than that."



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In the special report on aging, The Economist addressed specifically how retirement will change based on extended life expectancy and the fact that fewer young people are coming up behind us.

Retirement has been overdone. The original idea was that people should enjoy a bit of a rest after a life at work, but nobody imagined that the rest would stretch to almost a quarter-century. Some countries have already raised their official retirement age; others are debating whether it still makes sense to have a specific retirement age at all. One widely touted idea is to phase in retirement over a number of years. It does not seem like a good idea for people to be working at full tilt one day and twiddling their thumbs the next.



To give you an idea of how much retirement has changed, The Economist points out that the first pension, introduced by Otto von Bismarck, was for workers over 70. At the time (1889), the average life expectancy was 45. Today, the average U.S. life expectancy has reached 77.7 years.

So where does that leave us? We’re living longer and healthier lives. That’s good. On the down side, we can’t rely on government or private pensions to see us through retirement, both due to the amount of time we’ll be in retirement and the system being stretched to capacity. We’re it. What we save, how we invest, and how we plan will determine what retirement looks like. Instead of scaring you, this change should free you. You know exactly what you’re dealing with.

Perhaps we also need to redefine what retirement means. Few people want to go from “working at full tilt one day [to] twiddling their thumbs the next.” We need to ask ourselves what we value. What do you want retirement to be about? Maybe it’s about working 20-30 hours a week instead of 60-70. Maybe it’s about moving into a smaller home with a smaller yard to leave more time to do things versus take care of things. Maybe it’s about spending more time with the people you care for.

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But let’s get back to the definition of retirement. While the concept looks simple enough, you can always take a look from different angles.

When retirement as a stage of life is conceptualized, there appears to be general agreement that it is the period following a career of job-holding, when income is usually secured by pension benefits, by virtue of having held a job for a minimum length of time in the past. However, defining retirement in operational terms is more dicult, and there is no widely recognized and accepted operational definition in the literature today.

Operational definitions seek to define an abstract concept such as retirement in terms of simple, observable procedures. Ekerdt and DeViney (1990) introduced five criteria for defining retirement:

  1. Separation From a Career 
Under this criterion, persons retire upon leaving a job, position, occupation, or employer with which they have a long association. It is a criterion for which retirement is largely a one-time event. The idea is clear enough—people retire when they leave their life’s main work. However, the idea is not easy to operationalize because not all workers have continuous careers in one place or line of work. For example, if a vocational education teacher concludes a career at the local high school but remains occupationally an active plumber, is this a career- ending retirement? When there is not enough common experience and homogeneity of experience regarding careers and endings, it is dicult to frame survey questions about these transitions. One posthoc strategy (i.e., devising a measure from data already collected) is to characterize the position with longest tenure as the “career job” and one’s having left it as retirement.

  1. Exit from the Labor Force
Exit-retirements occur when an older worker has no current employment, as indicated by zero hours worked or zero earnings, and is not seeking employment. Operationally, labor-force exit is the easiest, most convenient definition of retirement, so long as the investigator does not overlook occasional or seasonal employment that occurs on a regular basis.

It has, however, the disadvantage of grouping together as “nonretired” all persons with any work activity, full-time employment along with nominal engagements in the labor force. This dichotomy masks the nature of older persons’ work patterns, which are increasingly characterized by part-time employment with advancing age.

  1. Reduced Eort
By this criterion, retirement is a substantial reduction in labor supply or income, as indicated by a lower level of work activity or earnings. The “reduced eort” criterion is a refinement of the previous “exit” criterion, locating the cuto for retirement/nonretirement higher up the labor supply distribution.

Work eort is often called an “objective” measure of retirement, yet determinations of full, partial, or nonretirement are fairly arbitrary. Some clues about where to categorize along the work eort or earnings continuum can be had by reference to other criteria.   For example, Murray (1979) has shown that people do not call themselves “partially retired” in great numbers until they have reduced work to 30– 34 or even 25–29 hours a week.

  1. Pension Receipt
Under this criterion, people retire upon receipt of retirement pensions. These are in the United States mainly the retired-worker benefit of Social Security or a pension from private or public employment. Pension eligibility is an administrative definition of retirement and already an amalgam of other criteria.  Eligibility for the Social Security benefit is defined by age, previous employment, and reduced earnings.

  1. Self-Definition
Persons can be considered to be retired if they say they are. This is typically called a “subjective” definition of retirement, which is an unfortunate label. When self-reports of retirement status are labeled as subjective, in contrast to the so-called objective indicators of reduced eort or pension receipt, it may be meant that retirement status is subjectively reported. Nevertheless, it is still important to understand what people mean by
their responses. When people say they are retired, are they confirming a role exit? Or assuming a social identity? Are they acknowledging facts about their employment or income? For instance, it can happen that older women, who have been housewives for virtually all of adulthood but receive spouses’ pension benefits, define themselves as retired. Other women with full and concluded work careers may see themselves as housewives. Claims about being retired may also be dicult to interpret among persons with histories of irregular work patterns or chronic unemployment. Another problem of the self-definition criterion is that self-definitions may change over time in ways that make it dicult to pinpoint the date or event of retirement. Persons may not decide they are retired until sometime after they have entered a set of circumstances. For example, after certain duration of disability or unemployment, a person may later decide that he or she had retired when the new situation started.

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But why the academic retirement definition is so important for the potential retiree? May be, because it is a basis for the retirement planning? Or maybe, it is a ability to reconsider your personal self-identification as retired?

When you imagine your retirement, you might not imagine this incoming period as life period that I will stop working. Do not think you would be missing a higher purpose of making your life mean something. Just took a little time and think about what your ideal retirement job would include. It would surely have the following:
  • Ability to work on projects that you enjoy.
  • Flexibility to working as much (or as little) as you want to.
  • Flexibility to when you want to.
  • Flexibility to work from wherever you want to.
  • Freedom from having to take orders from others.
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