In a June 2015 Wall Street Journal article, Mark Freedman stated that there is a new phase of life after adulthood and requested that someone develop a name for this phase. I agree and will make a suggestion.
First, I would like to put the development of this new phase, or stage, of life in context. Something very consequential has been happening in the way Americans are living their lives that has mainly escaped discussion or even attention. The expansion in the number of stages of life is making our lives more complex, requiring more adaptation, and expense.
We can trace human beings back about 800,000 years and, for 799,999 of those years, there were two stages of life: childhood and adulthood. About 100 years ago, the number of people attending and graduating high school started to grow. Many people did not go right from childhood to work, rather they extended their education. The terms “adolescence” and “teenager” were coined. It was a new stage of life.
Similarly, starting with Civil War pensions, and expanded by corporate pensions and Social Security, more people became able to leave the workforce while they were still reasonably healthy, and the Retirement stage developed. More recently, extended education, searches for life experiences, difficulty in getting a job, and other trends have kept many from starting careers or starting families until their late 20s and early 30s. This new stage of life between adolescence and adulthood does not have a well-accepted name. At Greenwald, we call it Transadulthood.
What was once two stages of life have become five: childhood, adolescence, transadulthood, adulthood, and retirement. Now, our research indicates that the retirement phase is evolving and dividing into two distinct phases.
Not long ago, gerontologists worried that retirees would become disengaged, isolated and lonely with nothing meaningful to do. Retirement was thought to be a time of rest, needed after the burden of the adult roles of earning a living and raising a family. Yet, today’s retiree is far from disengaged. They are typically eager for activity and involvement. In the early years of retirement, many seek encore careers, volunteer activities, educational programs and hobbies. Most hope to travel and spend time with family. New institutions have developed to satisfy their need for activity and engagement including senior centers, elder hostels, and a myriad of other educational programs.
I believe this reflects a new stage of life, called the Harvest stage – a time when people seek to reap the rewards earned by their hard work during the adult phase. This stage lasts from roughly age 62, the first year of Social Security eligibility to roughly age 75, the time at which the need for health and long term care starts to escalate.
The emergence of the Harvest stage has important implications for financial advisors and financial firms. For example, there is now widespread use of the concept of replacement rate for retirement income. Financial engineers assume that retirees need 70% to 80% of their pre-retirement income because they do not have to pay a FICA tax, save for retirement, and they no longer have to pay work related costs, such as commuting. What these financial engineers have overlooked is that when people retire they have an additional 40+ hours a week of available time. This new-found time produces increased spending opportunities that may counter the “savings” financial engineers assume.
The level of activity sought in the Harvest stage does not last forever. Starting around age 75, health care needs increase. The incidence of dementia and other illnesses starts to escalate. The Center for Disease Control states that a 65 year old reaches the end of healthy life expectancy at about age 75; it varies by gender. This leads to the development of the Care stage of life. Again, a number of institutions have developed to meet these needs, including assisted living facilities, continuing care communities, congregate care and hospices. Many new drugs and medical procedures have been developed for older people. There is evidence that the Care stage is lengthening. While life expectancy at age 65 has been going up at about one year per decade, healthy life expectancy has been going up more slowly. We are keeping the healthy alive long enough to get sick, and the sick alive longer.
Each stage of life has different goals and challenges. As people experience more stages of life, their lives become more enriched, but also more complex. New stages of life put enormous pressure on finances. Each stage is expensive. Thus, we need to understand the new way Americans want to live their lives, especially after adulthood, and provide them with the financial guidance and metrics to help them navigate the complexities and expenses of “retirement.”