Retiring at 60 is a relatively new concept, and possibly a short-lived one in our history. As populations age – and age better – people are looking at a host of ways to stay in work and sustain their retirement income. We present five charts that sum up the changing landscape.
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The idea that in one’s sixties it might be time to step out of work and retire into a life of leisure is relatively recent. Just over a century ago, people in the UK died on average 23 years before the official retirement age.
Ageing around the globe: a greying population 2015-2050
The odds of reaching 100 years old are around 50/50 for someone age 20 in a Western developed economy. By 2050, reaching a century won't be exceptional. But the geography of ageing is complex: in many countries a significant proportion fail to reach age 65. That is still expected to be the case in 2050.
Today, increasing longevity is already disrupting the three-stage life-cycle model that emerged in the 20th century of education, work and retirement. Built on a life expectancy of around 70, it is unsurprisingly not coping with life expectancies far higher (the next generation could expect to live between 95 and 100).
“More years were added to human life expectancy in the 20th century than were added across all prior millennia of human evolution combined,” says Professor Laura Carstensen of the Stanford Centre on Longevity, California. “In the blink of an eye, we nearly doubled the length of time that we are living.”
The people who will be most affected by these changes are in their 60s. Many enjoy a level of health and fitness that is, on average, much higher than what was expected when the idea of a three-stage life was born. In their desire to carry on working, it is almost as if they have set aside the notion of retirement. The idea there is a single age at which everyone comes to a hard stop is already outdated.
With low interest rates and lower return expectations, many will also struggle to save enough by their mid-60s to support themselves for an extended period. Retiring in one’s 60s or earlier might – once again – become the exception rather than the norm.
Looking at labour-force participation of over-55s in the US over time, retirement as we know it could be over.
When considering the emerging “many stages of life”, work might become more varied, with opportunities to develop skills in new areas. Redeploying into lower-paid work with social purpose, becoming an entrepreneur in later life or bridging two quite different occupations won’t be impossible.
Less rigid gender roles, with more sharing between income-earning partners, seem likely too, and education could become as vital for older people as it is for the young. It is unlikely choices made in your teens with training into your 20s will deliver skills for a working lifetime.
As skills shortages emerge, using existing talent for longer, drawing on the knowledge of multiple generations and reducing staff turnover make sense for companies too. But to do so, they will need to be more flexible than today.
This is also leading to multi-faceted, flexible models of pre-retirement, semi-retirement and full retirement income.
“Right across the globe, the idea that the state should guarantee retirement provision is becoming outdated,” says Charlie Jewkes, head of global financial institutions at Aviva Investors. “This is a huge issue, because it will mean that everyone will need to take greater financial responsibility.”
If the notion of a multi-stage life is right, we need to question the whole concept of a pension because of our need for assets at different times of our lives. There is a whole covariance of assets we now need to look at: health, relationships, education as well as work. This means we need to think differently about when we shuffle money from one period to another. That process is also going to be much more individualistic.
A holistic view would encourage greater understanding of the current position and an appreciation of what could be done to improve it. Ultimately, a three-stage life can only be arranged in one way: you get educated, have a job and retire. However, you can arrange a multi-stage life in lots of ways. Different people have different needs, and the best financial advisers will ask their clients what they really want and will be able to help them achieve that.