The Dream Retirement
Why It's Not What You Expect
By Pat Regnier

(MONEY Magazine) – We are living in a golden age of early retirement. Like it or not, though, that era is about to end--and we have only our own prosperity to blame. In just three generations, America has grown so rich that the average worker retires at 62, four years earlier than his grandfather did. That other byproduct of prosperity--a longer, healthier life--has stretched retirement three more years at the other end as well. This is progress. The only problem is, within the next two decades, those seven "bonus" years of leisure will collide with the 76 million baby boomers now hurtling toward their sixties. It's going to be awfully tough for the economy to support so many nonworking people for so long. This is the reason pretty much every economist who studies the subject is convinced that the American style of retirement is about to change.

Someone like Fran Reinstein of Tappan, N.Y. may hold the key to a new, more realistic dream of retirement. Reinstein spent much of her career commuting to work as a trainer at Citibank in New York City. She took a buyout in 2000, and now, at 65, she's the director of marketing for a small mortgage company. It's a full-time position, but she's now just 15 minutes from home and her boss has given her plenty of flexibility in her schedule. "I love working and I love the variety," Reinstein says. "As long as I can make room for traveling, reading, seeing my husband and my kids and grandkids, I'm going to continue."

Doesn't sound so bad, right? After all, four-fifths of boomers claim they expect to work in retirement. Doing so would certainly solve their generation's worrisome savings shortfall. "Working longer is a powerful way to ease the entire retirement-income problem," says Steven Sass of Boston College's Center for Retirement Research. But getting there is going to be more complicated than just telling your boss you'll be staying on until 70, thanks. The workplace needs to evolve quite a bit before it's ready for an army of gray-haired employees--and there's no guarantee it ever will. You too may need a change in thinking to be ready for the kinds of post-career work that will be available.

That's where this month's special retirement report comes in. Obviously, no retirement plan would be complete without a thorough saving and investing strategy, and you'll find plenty of guidance on that topic on the pages that follow. But perhaps the most important move you can make for your financial security is to chuck the old idea of retiring to nothing more than beach chairs, sunshine and trashy novels. Instead, it's time to start planning for a life that blends passionate engagement, well-spent leisure and, yes, a little paid work. Not a bad dream at all.

Why Would You Want to Keep Working?

First, because you might not be ready to quit. Just ask Kim Benz. She took an early-retirement package from Procter & Gamble to spend more time with her son, who has special educational needs. Though she was well set up financially, she found it tough to stay home. "One thing I was looking forward to in retirement was doing more gardening," says Benz, who is 52. "But when I left all that fast-paced work, my interest in gardening just disappeared." So Benz is back working 10 to 20 hours a week as a consultant for P&G. She's also gardening again.

The other reason to keep working is that a few more years can make a big difference in your standard of living later, as you can see in the table on page 101. Assuming you quit at 62 and live to be 82, notes Sass, you may have only 40 years of work behind you to support 20 years of retirement. If you wait until 67 and live to age 82, your work-to-retirement ratio of 2 to 1 shoots up to 3 to 1. This makes building up a nest egg far easier, and it means you won't be depleting it nearly as quickly. (Working can affect the taxability of Social Security benefits. See IRS Publication 915 at

Will Anyone Need You?

The conventional economic wisdom--summed up neatly by Federal Reserve chairman Alan Greenspan in a speech last year--is that older workers could be crucial to America's economic prosperity. With fewer people of traditional working age for each would-be retiree, the remaining workers will have to become more productive if America's standard of living is to keep rising briskly, according to the Fed chief. Or more people will have to keep working. Or a bit of both.

So will companies step up with jobs for older workers? One school of thought holds that they'll be falling all over themselves to get you. Management gurus have been warning for years that companies could face a severe shortage of skilled talent once the boomers go because behind them is a "bust" generation that's about 16% smaller. But Sass notes that if slower labor-force growth adds up to slower economic growth, companies won't be in a hiring frenzy.

And the demographic squeeze may not be as tight as it looks. Peter Cappelli, an economist at Wharton, does think more older workers will stay on the job. But, he notes, hiring them won't be the only option for employers. Just behind the busters is a huge group of new workers: the boomers' own kids. And taking on older folks is just one way for companies to deal with a tight labor market; they might invest more in technology or ship jobs to Bangalore. "There's no labor shortage coming," Cappelli concludes.

On balance, the prognosis for older workers looks fair, but it's no slam dunk. The American economy has a good record of creating jobs for willing workers. In the past generation, the work force managed to absorb millions of women into the ranks, notes Boston College economist Joseph Quinn. But that first wave of women had to fight their way in, and the same may be true for boomers. On the other hand, "boomers will be in an incredible position to knock some heads," Cappelli notes. "They've got a lot of power." If they win, the American workplace could look a lot different.

What Will Work Look Like?

Older workers face a lot of obstacles today. Age discrimination, sadly, is one of them. Jim Hirni, 59, spent a year looking for work after being laid off by the company that had acquired his technology business. He ran into plenty of employers who just couldn't get past his age. "One said, 'We're looking for someone with a lot of energy,' assuming if you are older you don't have the energy," Hirni recalls. He eventually took a job 600 miles away from his Hollis, N.H. home; he flies back every other weekend. (No energy shortage there.)

Why are employers afraid of older workers? Age discrimination is largely irrational, not to mention illegal. But employers do have one all-too-real incentive to keep their work force young: health-care costs. Obviously, wide-ranging health-care reform could lessen this problem. Some economists recommend tweaks like making Medicare the primary insurance for older workers.

One thing that can't be fixed is the fact that older workers, by definition, aren't going to stay with a company for 20 years. But many businesses today want to cut back on permanent positions and farm out projects when they need doing. That plays to the strengths of older workers, who might be less in need of regular work and are likely to prefer a flexible schedule. In the future, "we may find that companies will keep a relatively small core of strategic people" and rely on temps and consultants for more positions--even for fairly high-end work--says Mike Kostrzewa, executive vice president of a specialized temp firm called YourEncore.

Benz, the former P&G employee, does her consulting assignments as an employee of YourEncore, which was set up with help from P&G and Eli Lilly to tap into skilled retirees. Benz is involved in consumer research projects as well as leadership coaching. She expects to make more than $40,000 from her part-time jobs this year. P&G, meanwhile, doesn't have to worry about her benefits--or how to tell her good-bye if it runs out of work.

Lincoln Financial Group, which was named one of the 50 best places to work for people over 50 by AARP, brings back many of its own retirees through an arrangement with the temp firm Kelly Services. A Kelly rep even has a desk in a Lincoln Financial operation center.

What Will You Need to Do?

If you want to extend your career, your top priority is to try to stay healthy. About 20% of people over the age of 65 are disabled, according to a government study of the elderly. In that sense, poor health is the biggest career risk you face.

You also have to learn to think differently about your career. First, you'll need to keep your skills fresh--and management skills probably aren't what you need to work on. "Management jobs are really full-time jobs," says Cornell labor economist Robert Hutchens. If you expect to do part-time or consulting work as you wind down, you'll need up-to-date expertise in discrete, project-oriented tasks, whether that's in accounting, copywriting, event planning or computer programming. Ironically, this can be especially hard for the most accomplished people, who rise high enough in an organization that they can hire people to do the hands-on stuff. Nick Rawlings, 60, was laid off 18 months ago from his position as director of technology and planning at Yale. "I can read hexadecimal dumps and write a mean assembler-level routine," he says. "What I can't say yes to, though, is the question, 'Can you program in Java?' "

Second, you'll have to jettison the "grow, plateau and go" view of career and income. You're likely accustomed to the idea that you'll make more and more money over your career, coast for a while with a high salary and then stop. The fact is, you may find that your salary has to wind down too, even if you work full time. Reinstein makes a lot less at her new job than she did at Citibank, which took getting used to. On the plus side, she now has the chance to apply all her big-company experience to a start-up business. "There are always trade-offs," she says.

Finally, keep on saving. It's tempting to imagine that work and saving are on opposite sides of a scale: If you plan to add more work on this side, you can afford to save less on the other. But surveys show that most people say they plan to retire several years later then they actually do. You can't be 100% certain just how far into your sixties you'll really work or how much you'll make doing it. And if one thing is certain about retirement, it's that you'll have to be prepared for surprises.

Can We Really Keep This Up?

We're retiring earlier and earlier, even as we are living longer and living better. Most experts say the early-retirement part of that equation has to change.

NOTES: Income replacement rate is based on what the Social Security Administration considers a "medium" earner. N.A.: Not available. SOURCES: Murray Gendell, Center for Population Research at Georgetown University; Social Security Administration; Urban Institute Dynasim3 projections.

Retire Later, Retire Richer

Let's say you've saved $500,000 by age 62. Putting off retirement just a few more years can dramatically improve your prospects. If you can save $7,000 for each additional year of work and you live to be 82, here's how much savings you'll have when you quit, per year of retirement.

NOTE: Assumes return of 3.5%, with monthly contributions.