An aging global population has numerous implications for what it means to retire. People are living longer, having fewer children, remaining in the workforce, transitioning careers later in life, etc. But there are some other key points I’d like to highlight based on research and conversations we’ve had with global experts:
1. Retirement today is about much more than money.
That’s always been sort of true, but it’s even much truer now. Increased longevity has changed everything. In most ways, living longer is a boon. Who wouldn’t want an extra ten—or 20, or 30—years? But it presents new challenges. For instance, the issue of long-term care affects health, finance, technology and public policy in ways that can only be effectively addressed when all are approached in concert. The experts have barely started to come together and think through all these challenges and how they interact. We at BlackRock are starting a conversation but we’re only in the beginning stages. One thing we do know: Our expertise in helping people save and invest, but we need to be thinking about many other issues, and working with other experts.
2. “Retirement” is outdated.
The expectation that people should want (or be forced) to stop working at age 65 no longer makes sense in a world in which people live longer, live healthier as they age, and the ratio of old to young is considerable and growing. Yet as longevity has increased over the past century, we’ve tacitly tacked all the added years on at the end. Apart from the undesirability of making “old age” the longest phase of one’s life, it’s unrealistic to expect that most workers will be able save enough over the course of a 40-year working life to fund a possible 30-year (or longer) retirement. There should be no hard boundary on where work ends and retirement begins. In particular, mandatory retirement ages at the employer level need to be re-thought and in most cases reconsidered. Instead, we need to think in terms of a new “life script” that allows for greater flexibility, time off or part time work mid-career, more opportunities for education and retraining across our life course, and “phased retirement” in which people reduce their hours, shift into less demanding roles, and so on, but do not abruptly leave the workforce at some pre-set (and arbitrary) age.
3. Longer lives require better savings habits.
If you want any shot at a decent retirement, you’re going to have to save more. It’s just that simple. Defined benefit pension plans are in decline and aren’t coming back. Government programs like Social Security can help finance part—but by no means all—of tomorrow’s lengthy and expensive retirements. While the ultimate responsibility to save more is on participants, companies have a role to play, too. While the financial services industry has long been skeptical that better communications can raise savings levels, we now know from several real-life examples that improved communications can work. We need to re-establish trust with potential investors who may avoid investing for retirement in the belief that the financial system and participating firms are rigged against them. Common threads to building a connection are simplicity; direct, jargon-free language; and speaking to people in different ways depending on what stage they are at in life. For instance, it’s counterproductive to talk to young workers about “retirement,” a goal that seems to them impossibly distant. Language around “savings” works better. Older workers closer to retirement age respond well to messages that speak directly to their concerns about retirement. This will be a challenge for the financial services industry which, historically, has been technical, product-focused and accustomed to dealing with large institutions.
For more themes and additional insights, visit the BlackRock Retirement Institute.
Chip Castille, Managing Director, is head of the BlackRock Global Retirement Strategy Group and a regular contributor to The Blog.