Planning for the New Retirement

[00:00:00] Maddy Dychtwald There's a lot of attention on saving for retirement, but not so much for decumulation phase. And keep in mind, it's a huge population of people who are really dealing with this and trying to figure it out.  

[00:00:19] Jennifer Borget When you think about getting older and reaching retirement, what comes to mind? Do you picture life winding down? Or maybe you don't think about it at all because it still feels far away. Either way, retirement is changing. As we begin to live longer, retirement has become more active. Many retirees travel the world, pick up new hobbies or start new businesses. And it's really never too early to start thinking about retirement. By setting yourself up for success now, you can enjoy an active and fulfilling retirement that works for you. Today, I'm joined by Maddy Dychtwald, co-founder of Age Wave, a futurist leading an effort to better understand how the concept of aging is changing. Maddy is a national bestselling author and thought leader on aging, who joins me to discuss what you need to know about the new retirement and how it will affect you today and in the future. Then, I'll be joined by Andrew Weber, a senior director of planning, philosophy, research and guidance at Northwestern Mutual. He'll walk us through the steps that any of our listeners can take today to make sure we're in the position to get the most out of our money throughout retirement. Let's get started. Welcome Maddy. So before we jump into the episode, can you please just introduce yourself for our listeners?  

[00:01:37] Maddy Dychtwald I am Maddy Dychtwald, and I'm co-founder of Age Wave, also the author of a national bestseller, Ageless Aging: A Woman’s Guide to Increasing Healthspan, Brainspan, and Lifespan. And I am proud to say that I've been identified by Forbes as one of the top 50 women futurists globally. And wow, that came as a surprise to me and super cool. I've been in the field of aging longevity focused on retirement for close to 40 years. So you do the math. You can figure out. Yeah. Kind of like, yeah, I'm 74 and proud of it. And I think more of us need to put our age is out there so that we can get rid of the stigma of it's not so cool to be old. I think it's super cool. And yeah, so we just need to do a better job of living better, longer.  

[00:02:33] Jennifer Borget So I know you recently released a book. Can you tell us more about it?  

[00:02:37] Maddy Dychtwald Well, as I mentioned, I've been in this field of aging and longevity in retirement for close to 40 years. And along the way, we have done a tremendous amount of research at my company, Age Wave, in addition to which, we really tap into our network. And I wanted to understand for myself and then to share with other women, like what are the insider tips? What are those things that these experts tell the women they love? Because frankly, women and men are not the same. And there is very little information out there on how women specifically can live better, longer. And I wanted to change that.  

[00:03:19] Jennifer Borget Speaking of living better, longer, today we're discussing retirement. And that's something that's like arguably looking a lot different than it did for our parents generation. Can you like break down this? You know, how the next generations, you know, we're living longer than our grandparents longevity. Can you break that down for our listeners?  

[00:03:41] Maddy Dychtwald Absolutely. So let's begin with longevity. It's a big word, and not everyone understands what it means. But honestly, we are in the midst of a longevity revolution. I mean, 100 years ago, average life expectancy was only 47, and it has skyrocketed primarily in the 20th century, all the way up to an average of 78. Second thing to keep in mind is that two thirds of all people who have ever turned 65 are alive today. How do you plan for this longer life, or do you even think to plan for this longer life? And by the way, plan for this longer life.  

[00:04:25] Jennifer Borget How is this going to be impacting our society, like realizing that we're living longer? How will these changes impact like our listeners lives today and then going into the future as well?  

[00:04:36] Maddy Dychtwald First, Social Security. There was a poll done, actually was done quite a long time ago with millennials asking them about social security. And they said that they thought it was more likely that they would meet an extra terrestrial than that they would receive Social Security as we know it today. And the truth is that when Social Security was put into place back in the late 1930s, 40s, there were a tremendous number of people working compared to retirees. But today, that is not the case anymore. For every person retiring, there's I believe it's two and a half workers, and that is not a sustainable scenario. So that's one big concern. I would also say Medicare, another big concern. That Medicare will be able to sustain itself. So what does that tell us? It tells us that we, each of us individually, become more and more responsible for our own retirement. Also, there's another piece to this puzzle, and that is that pensions. Back in the day, people used to receive pensions from their from their employer and they generally were with one employer their entire life. Now, we know that just isn't the case anymore. That's another little arrow pointing us towards we're responsible for our own retirement. And that means from a savings standpoint, but not just from a savings standpoint. Financially, yeah, it's really important. But what about our health? What about our family and friends? What about our sense of purpose? I mean, all of these things really matter and they need to be planned for thought about in advance.  

[00:06:33] Jennifer Borget Now, I know that some of our younger listeners might be a little anxious. We were talking earlier about how so much of the population is getting older now and living longer, so they might feel a little anxious about what having an older population means for their own retirement and their future. Do you think that's a real concern and how could it affect them?  

[00:06:55] Maddy Dychtwald I think that it's a legitimate concern. I think we need to recognize as a population that as longevity increases, we've got to rethink some of the social established services that we have in place and even to reconsider the whole idea of retirement. What does it mean? When retirement with first put into place, average life expectancy was only 58 years old, so there was an assumption that very few people would be using Social Security and then they'd only be using it for a few years. Well, that concept, it's really been put on its head because that's not the case anymore. I mean, average life expectancy is all the way up into the late 70s. And people are on average spending 20 to 30 years in retirement. Now, that's a long time to live on a fixed income. So what's really interesting to me is this idea of work and retirement. Now, we used to think work and retirement were opposites. And now what we're beginning to see with the new definition of retirement is that work can be part of retirement. At Age Wave, we did a study asking pre-retirees and retirees what and for retirees, it's what do you miss most about the workplace? And then we asked pre-retirees, what do you expect to miss most about the workplace? So for pre-retirees, they said, well, I'm going to miss some money. So that made sense to us. But then we asked retirees, and retirees had a slightly different answer. They said, sure, the money matters, but what matters even more are the social connections. This idea of social connections. It's actually part of the recipe for living better, longer.  

[00:08:57] Jennifer Borget This concept, is this new retirement? I know you've previously spoken about that. How is that changing? How people are saving for retirement?  

[00:09:06] Maddy Dychtwald Saving for retirement couldn't be more important than it is right now. And it's important for young people as well as for older people. And there is a segment of the population, let's be honest about it, Gen Z, Gen Z has done an amazing job of recognizing the fact they may have to be responsible for their own retirement and living longer. And they are the ones who are doing a pretty good job of saving. With that first step being is maxing out their 401(k)s. So they're taking a lot of responsibility and that's great news. However, the message I like to give to people in their 50s, 60s and beyond, you know, it's never too late to start saving for retirement. Learning. Learning. What is some of the basic language you need to understand? Maxing out 401(k) or IRAs, taking steps to understand the world of investments and taking small steps to do so because it's never too late. And that is a really important message.  

[00:10:15] Jennifer Borget How do you think it's going to change, like, maybe the typical life trajectory for people like from education, career to family life and retirement?  

[00:10:25] Maddy Dychtwald At Age Wave, we've done research on this, and we we have recognized that a couple of different things. Let's start with this idea that throughout most of history we have lived very linear lifespans. So first we learned. We did that just once. Then we worked and built a family and we just did that once. Then we retired, maybe we took a cruise or something, but spent a little time relaxing in retirement. And then we died. And that was pretty much the way the lifespan worked. But that's not the way it works anymore. We all know that. We have developed a more cyclic life span. What does that look like? It means we take the concept of work, retirement and education, and we mix it up throughout the lifespan.  

[00:11:18] Jennifer Borget But obviously, you know, having having some savings in place will help and give you more options to do things like that if that's what you want to do.  

[00:11:26] Maddy Dychtwald By the way, you know, as I mentioned earlier, having financial well-being or a financial peace of mind, it's the underpinnings of everything else working well in your retirement. There's a lot of attention on saving for retirement, but not so much for the decumulation phase. And keep in mind, it's a huge population of people who are really dealing with this and trying to figure it out. We need to recognize that. When we're in our prime years of our 20s throws 40s and we're building our career, it is really important to think about our future self as well as our present self. Put away a little bit something for your future self and your future self will be very happy.  

[00:12:20] Jennifer Borget What an interesting conversation. It was inspiring to hear that two thirds of people who have ever turned 65 are alive right here and now. I loved getting Maddy's insights on how we can shape the future to be better set up for this key demographic. Ironically, those of traditional retirement age, something that probably like you, I honestly haven't thought a lot about. It's clearly something that should be on all of our minds. Next, I spoke with Andrew Weber. Andrew is going to walk us through what modern retirement planning looks like. Andrew, to start, can you just introduce yourself and tell me a little bit about what you do?  

[00:12:54] Andrew Weber I work at Northwestern Mutual on a team called Planning Excellence. So I'm representing the group here that researches financial planning strategies to produce better outcomes for our clients.  

[00:13:03] Jennifer Borget We know that people are living longer. That's something that we're talking about today. People are living longer, but in many cases we're still retiring at the same age or actually even a little bit older. So what does that mean when it comes to retirement planning?  

[00:13:19] Andrew Weber One of the largest unknowns to retirement planning is life expectancy. So people could live 20 years, 30 years, maybe even 40 years into retirement. And the difference that the cost of that retirement will be is is very big. Our actuaries estimate there's a 50 percent chance that one member of a 65 year old couple today will live to age 92. In our latest Planning and Progress study, both the millennial and gen z generation believes there's a 46 percent chance that they'll outlive their savings. So this is a real concern for a lot of folks, even younger ones.  

[00:13:55] Jennifer Borget I know that's something I worry about, like, trying to balance out like this, like, okay, I got to save for retirement, save as much as I can. And then there's also this idea of like, no, you've got to enjoy your money while you're alive. Like, die with zero. But none of us know how long we're actually going to live. What should people do?  

[00:14:13] Andrew Weber Well, the key is to have a plan. And putting a money, money away for retirement is really important because it is something that you're going to have to be intentional about. And there are really two types of plans. One is, am I saving enough for retirement? And other plan is how how do I create enough lasting income while I'm in retirement? And the two really go hand in hand. Because what you save today will impact the assets that you have and the incomes that you have to live on in retirement. And where you save is as important as how much you save. And that can be a common blind spot for people because the goal is to create flexibility. We know our listeners want, especially when they don't know exactly what retirement will look like.  

[00:14:56] Jennifer Borget So a lot of people probably are like, you know, me, think of retirement plans. We're probably saving through our work like our 401(k) plans or maybe into an IRA. Is that what you mean by like when you're talking about how to save and where to save or where people should be thinking about it?  

[00:15:11] Andrew Weber That's exactly right, Jennifer. So far, 401(k)s are great. Their employer sponsored plans, they allow you to save pre-tax, which can save you money today and allow that money to grow tax deferred. The challenge with that, though, is that it is taxed when you take the money out. So think about 401(k), and let's say you had a million dollars in your 401(k). Well, when you retire, you have to pay taxes on it. And so let's say your tax rate is 25 percent. That million dollars is now 25 percent less, 750,000. So between uncertainty of how long you're going to live and what tax rates will be in the future, those are two big unknowns that we should be intentional about doing some planning around. So in addition to the 401(k) or an IRA there, what's known as Roth accounts and sometimes those are available on the same 401(k) plans through our work or they can be saved into in and outside a Roth IRA account separate from your work account. And with these accounts, you save after-tax money and the money grows tax-free and you can withdraw in retirement tax-free. So that gives you more flexibility in how you can save efficiently for retirement. As we know, the tax system is a progressive tax system, meaning the more you earn or the more income you have, the higher taxes you pay. And so if tax rates go up or your income goes up in the future, paying taxes on the seed and not the harvest, pay taxes today rather than on a large lump sum of money later may be more beneficial for you. Taxes are definitely a key risk in retirement. Sometimes it may not be saving more, just saving a little differently in your plan. And another option is life insurance. Now, typically, a lot of people think about life insurance just for the death benefit. I'm paying for this and I only get benefits if I die. There are other types of policies called permanent life insurance policies or whole life insurance, where they're designed to pay a death benefit no matter how long you live. And some of the interesting things about those types of policies are they also accumulate cash value that grows over time that you can access during your lifetime. And the cash really is guaranteed to grow. And there are ways to get access to that money tax-free without paying any taxes on it. So that can mitigate a couple of the risks in retirement. We mentioned we don't know what future tax rates are going to be. And the other that we haven't mentioned yet is market volatility. We don't know what the stock market's going to do when we retire. And that's a that's a big risk as well. And so having an option for if the stock market crashes to have another bucket of money that we can draw from, gives you a lot of flexibility in retirement. The sooner you start, the better you're going to be. Because of compound interest, you can have your wealth grow.  

[00:17:57] Jennifer Borget And I know one question I'm sure a lot of our listeners are always asking themselves. When they're kind of trying to make these goals is, am I saving enough?  

[00:18:05] Andrew Weber Rules of thumb are are difficult for things like this, because the answer to that question is really going to be different for how you want your retirement to look. And so that's what the plan is for, is to outline what you want your retirement to look like. At what age do you want to have the ability to not have to work anymore? How much is that going to cost? How long we think that's going to last? And then our advisors can show you a road map to get there financially. And so there may be a multiple different ways to get there. And what happens if life throws you a curveball? You want to be prepared for those things too. So I can give you a lot of confidence that you're saving enough for the types of things that you want to do today and in the future. And in some cases, you may even find out that you're saving too much. And you could be told, Jennifer, you can scale back on that long term savings and actually enjoy more today.  

[00:18:59] Jennifer Borget So what is one thing our listeners can do today to put themselves in a better position as they're saving for retirement?  

[00:19:06] Andrew Weber Yeah, I would say get started. Saving is important. It's one of the most important things that you can do to feel the resources that you need to have, the assets that you need to live on for the rest of your life. So get started when you're ready for help to improve what you're doing. Meet with an expert. Talk to an advisor. Our advisors can help you implement a mix of strategies, financial options to help you based on your situation, your goals, what you want to do, what's important to you. Because at the end we want to make sure your money works as hard for you as you work for your money.  

[00:19:44] Jennifer Borget This was such an interesting conversation about how we can utilize the tools at our fingertips now to help us plan for our futures. I hope you've got some as well. Here's some of my takeaways. First, the future looks different. We're used to a traditional and somewhat stagnant framework and mindset relating to retirement, but the current reality and what we can expect in years to come demands a new outlook. It shocked me to hear that when the concept of retirement was put into place, the average life expectancy was only 58 years old. Now that lifespans have increased, it's changing the way we live and when we reach certain milestones. People are getting married, having children, and exiting the workforce later than ever before. So we need to adapt how we look at retirement to align with this changing future. Next, retirement is active. As Maddy discussed why we used to think of work and retirement as polar opposites. Now everyone's retirement can look a bit different and many can involve things like working at a slower pace or in a more relaxed field. As people live longer, the first decades of your retirement can also be a time of activity and exploration. It's never too early to start thinking about what retirement might look like for you, because with all the options and resources at our fingertips, it looks very different for everyone. And finally, we need to broaden how we think about retirement savings. A 401(k) through work or something similar is great. The best retirement plans use additional financial tools to give you flexibility in retirement, which is a key way to help ensure your money last as long as you do. Visit Northwesternmutual.com/podcast for retirement planning guides and more resources to help you picture and plan for your retirement.  

[00:21:35] Speaker 4 Financial representatives do not render tax advice. Consult with a tax professional for tax advice that's specific to your situation. All investments carry some level of risk, including loss of principal invested. No investment strategy can assure profit and does not protect against loss and declining markets. Northwestern Mutual is a marketing name for the Northwestern Mutual Life Insurance Company NM and its subsidiaries in Milwaukee, Wisconsin. Not all Northwestern Mutual representives are advisors. Only those representing those with advisor in their title or who otherwise disclose their status as an advisor of Northwestern Mutual Wealth Management Company, or credited as NMWMC representatives to provide advisory services.