For part two of our conversation with Todd Tresidder of Financial Mentor, we asked him for his thoughts on the changing face of retirement. He had a lot to say about “the New Retirement,” something we’ve talked about in the past.

What changes do you think we’ll see in the coming years in terms of how people financially prepare for the later years of their lives?

There are two big trends affecting retirement planning that appear separate on the surface but result from a common root cause – increasing longevity.

The first trend is the change from socialized to individual retirement planning as evidenced by the declining roles of Social Security and traditional pension plans as they get replaced by 401(k)s and IRA type plans. I wrote a lengthy article fully explaining these issues here.

In a nutshell, the problem is socialized retirement planning was implemented at a time when life spans were shorter. In the last 100 years life expectancy has increased by roughly 100 days per year providing an additional 30 years. The system was never designed to provide the funding necessary to support these longer retirements.

At the same time, greater longevity caused problems with both the financial and fulfillment aspects of retirement resulting in the second trend I call “The New Retirement”.

The first aspect of The New Retirement, fulfillment, is about people waking up to the reality that it makes no sense to work like a dog for 40 years so they can do nothing of substance for the remaining 30 years. They want more balance throughout their working lives so they can enjoy the journey rather than just the destination. The result is phased career changes, encore careers, hobby income, and other alternatives. The objective is to find a balanced career path that is so fulfilling you never want to retire from it.

Directly related to this is the financial issue. Not only does 30 years of doing nothing in retirement sound unfulfilling to most people, but it’s also really expensive to pay for. People are realizing how part-time income or an encore career that generates even a small income can have a dramatic, positive impact on the savings required to fund retirement.

For example, for every $1,000 increase in earned monthly income during retirement your savings burden is reduced by roughly $300,000. (“Rule of 25” or “4% rule” where (($1,000*12)*25)=300,000. Yes, this is just a rough rule of thumb, but it provides a simple solution that is workably close to more sophisticated tools like Monte Carlo analysis and other techniques).

Advocates of the New Retirement are finding it much easier to build a second career that pays $1,000-2,000 per month rather than figure out how to save an additional $300,000 to 600,000. In addition, these encore careers provide many other benefits including a sense of community, contribution, social interaction, mental challenge, and belonging – not to mention the extra cash.

In summary, the new trends in retirement planning stem from one root cause – increasing longevity. This one issue is changing virtually every aspect of retirement planning from investment strategy to savings patterns to lifestyle. 30+ year retirements are too expensive to fund. 30+ years of leisure is inconsistent with the lifestyle most humans find fulfilling, and 30+ years is a long enough investment horizon that investment strategy is impacted.

The theme for the new retirement is greater life balance and fulfillment – work less but work longer. Mix recreation with pleasure. Earn a little and play a little. Balance it all in a creative way that maximizes happiness and earns enough to take the pressure off retirement savings requirements.

That’s the essence of the New Retirement.

Thanks again, Todd! Glad to see the changing face of retirement is something that many financial bloggers are thinking and writing about.

What are your thoughts on the New Retirement? Do you have a job that you love and will continue to hold during your later years?