Steve Vernon on the Second Middle Age, Social Portfolio, and Retirement
Journal of Financial Planning: October 2018
WHO: Steve Vernon, FSA
WHAT: Research scholar at the Stanford Center on Longevity; author, president of Rest-of-Life Communications; FPA Annual Conference speaker
WHAT'S ON HIS MIND: “Put the same kind of thought and planning into your social portfolio as you might in your financial portfolio.”
1. You have been studying the topic of retirement for more than four decades. What inspired you to research this stage of life?
I’ve studied retirement all my professional life. At the beginning of my career, I was helping employers manage their retirement programs to comply with laws and regulations; I really didn’t think of its effect on people’s lives. But as I reached my 40s and 50s, I was more aware of the significance that retirement takes on for people and how it affects their lives, and I was getting older, so I started thinking about it personally.
In my 40s and 50s and now 60s, I’ve been really interested in helping people with this transition out of the workforce and into retirement. There’s a complex series of decisions that people make that will significantly impact their quality of life, and I see people making decisions that aren’t the best for them, so I’m motivated to help people with this significant life transition.
2. Is there a specific area within retirement that you feel needs to be more researched?
I think the most challenging aspects of retirement are in decision-making—how to help people make more effective decisions. Also, how people can blend working with retirement. A lot of people don’t have enough money to retire full-time in their early- to mid-60s under their current standard of living, but they could do part-time work. So how can people work part-time and balance their retirement goals with working? Are they still going to be happy? How will they stay socially engaged? How can they keep healthy?
These are decisions that will impact quality of life and retirement, and that’s where I’d like to see more research. The non-financial issues are just as important as the financial issues, but I think they need more research.
3. What is the most challenging issue facing retirees today? What will it be for the next generation?
If you had to pick just one issue, I think it’s longevity and long lives.
Our thinking about retirement as a society evolved when people lived until their late 60s, early 70s, and they retired in their mid-60s. If you retire in your mid-60s and only live five more years, that doesn’t take a lot of planning. But now, you could start your career in your early 20s, work for 40 years, retire in your early 60s, and be retired for another 30 years. That’s a big difference from a couple generations ago.
Our society’s attitudes haven’t caught up with the reality that planning for a 30-year retirement is a different situation than planning for a five-year or 10-year retirement, so I think that’s the biggest challenge.
People somehow think they deserve or need to retire in their early 60s, and yet, they’re still able-bodied and capable of doing work. In my view, if you don’t have the money to retire full-time, it makes sense to consider working in some way. But both individuals and employers really haven’t caught up to that necessity, and unless our attitudes change, I think it’s going to face the next generation as well.
4. In your book, Retirement Game-Changers: Strategies for a Healthy, Financially Secure, and Fulfilling Long Life, you offer a more expansive definition of retirement: “Retirement means improving your life by changing your work.” Can you elaborate on this?
I believe that if you realistically assess your financial resources in your late 50s or early 60s, either you will decide you need to work longer, or you’ll decide you need to reduce your standard of living, or some combination.
I think a lot of people have viewed retirement as the answer to whatever it is they don’t like about work. Historically, retirement was viewed as: just make it to retirement age and your life will be happy; you don’t have to work anymore.
If I come along and say, “Well, you don’t have enough money to retire and have your current standard of living, so maybe you have to work longer.” You might groan and say, “I can’t imagine working into my late 60s, early 70s.”
What is it about your work that makes you groan like that, because you might have some control over fixing that. Actually, you should do this all your life. If you’re in your 30s, and you really don’t like your work, how do you fix that? By this definition of retirement; you ought to continually “retire” throughout your life.
In my mid-50s, I transitioned out of my career job where I was working 50, 60 hours a week into something where I’m working 30, 40 hours a week, with less travel, and it’s more enjoyable, and I’m helping people. So, a lot of my thinking about working longer has come about by reflecting on my own situation and talking to other people about work. It has helped me focus on this idea of integrating your retirement with your working life and having a period of time in between working full time in your career and full retirement. This period could last five, 10, 15 years where you’re enjoying your work more and, therefore, enjoying your life more.
We need a word for this phase that we’ve inserted between your full career and your full retirement. In the book, I proposed calling this a “second middle age.” The first middle age is focused on raising families and careers, and for a lot of people, both of those come to ends in their 50s or early 60s. The second middle age is when you’re still healthy and productive, but maybe you don’t have family obligations, and your first career has played its course. But you are still able to earn money, which can improve your financial security.
5. Tell us more about what your own retirement will look like someday.
I turned 65 recently, and I don’t consider myself retired at all. I did “retire” from my career job, but I like to call that an honorable discharge. I just went on to do something else. And I’ve been doing that for 12 years now, and life is good. I’m making a lot less money than I did in my full career, but I’ve arranged my finances so that that’s OK.
I intend to start Social Security at age 70, and that’s when I’ll start to draw down my 401(k), so age 70 is a target retirement age for me. I’ll reassess at age 70, but I do acknowledge that at some point, maybe in my mid-70s or so, I probably will stop working altogether.
I see it as a long transition from my full career, to doing work that I like with more flexibility, but may taper off into my 70s.
People in their 50s should start thinking about what that second middle age might look like. Have your radar out. Clients, vendors, or other people you’ve run across in your career may have opportunities for you. It’s possible for many people to make a similar transition, but it requires some planning.
6. You also write in your latest book about the “social portfolio.” What is this, and why is it important?
We’re seeing research at the Stanford Center on Longevity and elsewhere, where isolation is a health risk and a risk to your enjoyment of life. Particularly when you get older, having a rich social life is really important.
In the book I talk about two types of social support. One is instrumental support, where someone helps take you to the doctor and lends logistical support. The second is socioemotional support—just having someone to talk to. Both are important. The social portfolio is about having diverse people to meet different needs.
In the book I say that people have three very basic human needs. One is a sense of identity—I’m a writer, I’m a teacher, I’m an accountant. The second is a sense of purpose and meaning—what you’re doing in the world, and is that helpful to other people? And the third is your community.
These three very strong human needs get disrupted when you retire, and yet, people often focus just on the financial part. Put the same kind of thought and planning into your social portfolio as you might in your financial portfolio.
7. What is a trap for the unwary retiree regarding medical insurance and Medicare?
There are two. The first is equating Medicare with the medical insurance plan you had at work. Medicare is a lot different. If you select traditional Medicare, you’ll have different deductibles and copayments for outpatient, inpatient, and prescription drugs. Your out-of-pocket expenses can be a lot higher on Medicare, unless you buy some kind of a supplement.
You can supplement Medicare through a Medicare Advantage plan or through a Medicare Supplement plan, aka Medigap. With Medicare Advantage, you’re going into a PPO or HMO. Medicare Advantage does a good job of consolidating all the parts between outpatient and inpatient and prescription drugs. It makes your healthcare decisions a lot easier, but you’re usually restricted to the providers in the network
Or, you can buy traditional Medicare with different deductibles and copayments for its various parts, and then buy Medigap, which pays for the deductibles and copayments. Your decision-making is more complex, but you have complete freedom to pick providers that accept Medicare.
There’s not a right or wrong answer; it’s just what makes sense for you. But the second trap is thinking you’ll go with one and switch over to the other at some point. When you’re 65, you have a one-time choice to pick a Medicare Supplement plan and not be subjected to medical underwriting. Thereafter, at Medicare open enrollment, if you want to switch to a Medicare Supplement plan, insurers can exclude you for pre-existing conditions. You can switch from one Medicare Advantage to another Medicare Advantage plan at open enrollment. But it’s a one-way street if you elect Medicare Advantage at age 65. So at age 65, try and make your decisions with the rest of your life in mind.
8. What role do you feel a financial planner can play in a person’s successful retirement?
It’s important to distinguish between planning advice and investment advice; investments are just one of many important decisions that a person needs to make. The Medicare decision, for example, is one of many non-investment decisions that a financial planner can help people with. As a financial planner, you don’t need to be an expert in different types of Medicare plans, but you can at least tell people of the importance of this decision, and then point them in the direction of helpful resources.
That’s where planners can add tremendous value—laying out all these decisions and helping clients make smart choices.
Transitioning from your career into retirement is a serious endeavor; it takes time. If you’re going to live in retirement for 20 or 30 years, it’s going to take some training and some work. That’s the role I think the planner can help with—motivating clients and inspiring them to spend time on this.
It’s an exciting time to be a financial planner. You can help people live these long, productive, healthy lives.
9. In your column for CBS MoneyWatch, you recently wrote about research that showed how over the last 40 years, retirees have more than doubled their TV time, and their volunteering time hasn’t budged. What do you make of that?
I’m trying to draw attention to more constructive ways to use your time in retirement. We’re seeing social isolation as an issue, and we’re seeing that sedentary behavior is not good for your health, either. If you’re watching TV, chances are you’re isolated and you’re sitting.
We talked earlier about the importance of a social portfolio. A lot of people say it’s hard to make friends once they’ve retired. Well, go out and volunteer. You’ll make lots of friends, and if you’re volunteering for a cause you’re passionate about, you’ll meet like-minded people.
To me, getting out and volunteering is a great way to spend your 60s and 70s. Remember those three basic human needs: your sense of identity, your community, and your meaning and purpose. Volunteering helps with all three.
People in their 60s and 70s can change the world with their time. I’m trying to inspire people to do that.
10. You are a third-degree black belt in aikido. Does your martial art training apply to your work as a researcher scholar?
I think having some kind of physical practice is good for your physical health but also good for your mental health. In my case, that physical practice was aikido; now it’s yoga.
Aikido helped me learn how to relax under stress. That lesson applies all the time. Learning how to remain focused and centered under stress was wonderful for me. When I get up and give a talk in front of an audience, I feel comfortable. If people are challenging my thoughts, my words, I can respond more effectively if I’m centered and focused.
Aikido also gave me a sense of resilience; if you fall down, get up. And that applies to life. In your later years, you’re going to encounter a lot of hurdles; you’re going to have setbacks. When you do, you dust yourself off and get going again.
The last lesson I learned is that I really can’t control what happens to me, but I can certainly control my response and how I react. All of these are good lessons for coping with the challenges we’ll face in our 70s, 80s, 90s, and beyond.