The days may be over when a gold watch is a somewhat ironic and less-than-useful gift for a retiree.

If the experts are on target, retirement in the next century will scarcely resemble the conventional image of lazy days spent on cruise ships and golf courses. For example, you might plan to open a business of your own. Or perhaps you'll return to school for that graduate degree you never had the chance to complete. Of course, you'll probably still find time to sit back and put your feet up.

A new life cycle for the new millennium: longer and healthier

At the turn of the 20th century, the average life expectancy was 47 years. Today, the average American can look forward to about 79 years of life. By 2040, among individuals who reach age 65, average life expectancy is projected to rise from 82 to 85 for men and from 85 to 88 for women, according to the National Center for Health Statistics.

What's behind this trend? Some causes are obvious, such as improved health care, both early on in the form of preventative medicine and during the later years of life. Medical advances, ranging from beta blockers that control hypertension to hip replacements, allow older Americans to remain active. Healthier lifestyles are also a contributing factor.

Age 65: getting younger all the time

The result is a new way of thinking about age. In her best-selling book, New Passages, Gail Sheehy argues that the "midlife passage" generally thought to take place at age 40 now occurs a decade later. The period between ages 45 and 65 is no longer middle and old age, according to Sheehy, but a "second adulthood."* Psychologist Ken Dychtwald, chief executive officer of Age Wave Inc., a California-based consulting firm, also sees new lines being drawn. Using his model, ages 25 to 40 represent young adulthood, while ages 40 to 60 comprise a new stage known as "middlescence." Next comes late adulthood (60 to 80), followed by old age (80 to 100), and very old age (100+).**

But perhaps more important than the categories is the effect that longer, healthier lives may have on the traditional life cycle of education, work, and retirement. It will be replaced by a less linear cycle, according to Dychtwald, who forecasts short-term retirements, followed by any combination of career shifts, part- or flex-time work, entrepreneurial endeavors, and continuing education peppered with occasional "mini-retirements."**

Today's older American doesn't hesitate to change jobs – or careers – in the pursuit of keeping life interesting. This trend should accelerate. A nationwide survey of workers revealed that 67% of respondents plan to continue working in some capacity after retirement.***

*Source: Gail Sheehy, New Passages: Mapping Your Life Across Time, 1995.
**Source: Ken Dychtwald, Age Wave – How the Most Important Trend Will Change Your Future, 1990.
***Source: Employee Benefit Research Institute, Retirement Confidence Survey, 2015.

What does retirement mean to you?

There is no one answer. In this century, "retirement" will mean something different to each of us. Regardless of your decision, you'll need to design a financial plan suited to your specific vision of the future.

First, look at your sources of retirement income. If you pay attention to the financial press, you've probably come across at least a few commentators who speak in gloom-and-doom terms about the future for American retirees, decrying a lack of savings and warning of the imminent growth of the elderly population.

The risk of solely depending on your pension and social security

True, there is widespread concern about at least one traditional source of income for retirees – Social Security. Under current conditions, Social Security funds could fall short of needs by 2034.1 But the reality is that Social Security was intended only to supplement other sources of retirement income. In fact, Social Security benefits account for only 34% of all income received by retirees, and one-third of retirees rely on Social Security for 90% or more of their income.1

Even pension plans, once considered a staple of retirement income, only account for 21% of the retirement-income pie. In recent years, employers have been moving from traditional defined benefit plans based on salary and years of service to defined contribution plans, such as 401(k) plans, funded primarily by the employees.¹

This shift makes it even more important for individuals to understand their goals and have a well-thought-out financial plan that focuses on the key source of retirement income: personal savings and investments. Given the potential duration and changing nature of retirement, you may want to seek the assistance of a financial professional who can help you assess your needs and develop appropriate investment strategies.

¹Source: Social Security Administration, Fast Facts & Figures About Social Security, 2016.

Important variables: time horizon, inflation, and taxes

As you move through the various stages of the new retirement, perhaps working at times and resting at others, your plan may require adjustments along the way. A financial professional can help you monitor your plan and make changes when necessary. Among the factors you'll need to consider:

Time horizon

You can project periods of retirement, reeducation, and full employment. Then concentrate on a plan to fund each of the separate periods. The number of years until you retire will influence the types of investments you include in your portfolio. If retirement is a short-term goal, investments that provide liquidity and help preserve your principal may be most suitable. On the other hand, if retirement is many years away, you may be able to include more aggressive investments in your portfolio. You will also need to keep in mind the number of years you may spend in retirement. Thirty years of retirement could soon be commonplace, requiring a larger nest egg than in the past.

Inflation

One scenario: An automobile with a price tag of $20,000 today may cost $29,600 in just 10 years, given a hypothetical inflation rate of 4%. While lower-risk fixed-income and money market investments¹ may play an important role in your investment portfolio, if used alone they may leave you susceptible to the erosive effects of inflation. To help your portfolio keep pace with inflation, you may need to maintain some growth-oriented investments. Over the long-term, stocks have generally provided returns superior to other asset classes. Past performance is not indicative of future results.² But also keep in mind that stocks generally involve greater short-term volatility.

¹An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.
²Sources: Standard & Poor's; the Federal Reserve. Based on the 40-year period ended 12/31/16.

Taxes

Even after you retire, taxes will remain an important factor in your overall financial plan. If you return to work or open a business, for example, your tax bracket could change. In addition, should you move from one state to another, state or local taxes could affect your bottom line. Tax-advantaged investments, such as annuities and tax-advantaged mutual funds, may be effective tools for helping you to meet your retirement goals. Tax deferral offered by 401(k) plans and IRAs may also help your retirement savings potentially grow. Keep in mind that withdrawals made from annuities, 401(k) plans and IRAs prior to age 59½ are taxed as ordinary income and may be subject to a 10% federal penalty.

Think long-term: begin planning now

To help ensure that retirement lives up to your expectations, begin developing your plan as soon as possible and consider consulting a professional. With proper planning and the support of a qualified financial professional, you can make your retirement whatever you want it to be.