By Elke Zeki
This month we launched our Encore workshop, specifically aimed at people approaching retirement and the challenges the “New Old” face today. There is a distinct phase of life (we argue between 55-70) where many of the old are still young. They are active, relatively healthy, want to work (although flexibly) and spend money. Yet society sees this group as a headache. As the world ages, especially in developed countries – growth, tax revenues and workforces will decline while spending on pensions and healthcare will increase. Or so we thought…
The Economist recently published a special report on this exact topic. They argue that healthier, longer lives can be an economic advantage and that the key to unlocking this “longevity-dividend” is to turn this group into more active economic participants. I summarise and comment on their findings below.
What can we call this phase between work and old age? These days, people don’t check into the retirement home the day they retire. Life no longer consists of only three stages – educate, work, retire. There is a new life phase and we need to capitalise on it, as those in it can add great economic value, both as workers and as consumers.
So why have businesses, employers and financial services not moved away from the old way of thinking?
It seems we need a radical approach to change behaviour. Those catching on quickly are reaping the rewards.
Why should the workplace change?
A bit of history first: The first formal pensions (in the 1880s) were payable from age 70 (later reduced to 65), yet life expectancy was 45. Today in the developed world 90% of the population live to 65, mostly in good health, yet it’s still seen as the starting point of old age and many companies still force staff members to retire at this age.
Baby boomers are famed for their work ethic and commitment to getting the job done. As many are hoping for a flexible transition to retirement, why not use their skills and ability? They are likely to be content with a flexible job that pays less and they are certainly not looking for career progression.
It’s interesting that the sort of changes older employees seek, such as flexibility and wellness, are exactly the things young millennials entering the workforce demand. Why not make it productive for everyone?
Where are the opportunities?
Businesses are not adopting quickly enough, therefore the emergence of entrepreneurs amongst this group has increased dramatically. According to The Economist survey, US 55 and 65 year olds are 65% more likely to start-up companies than those between 20 and 34. In the UK, 40% of new businesses are started by over 50’s.
Innovative businesses capitalising on this group includes Uber. Currently – a quarter of all Uber drivers are over 50. Airbnb also proclaims the over-60’s to be the fasted growing group of hosts on their home-sharing site and receive the highest ratings from customers.
Travel has become a booming business in the US, where more than 40% of adventure travellers are over 50. These travellers don’t want cruise ships; they want different and adventurous experiences such as Antarctica and Galapagos!
Another area identified is technology. It holds great promise to make life better for the elderly, especially when it comes to healthcare. The notion that baby boomers shy away from technology has been proven untrue by many researches.
It seems there are many gadgets and platforms built with young people in mind, that can be more useful for older people. Facebook for example offers a platform for people to stay in touch or connect with loved ones. Over 55 is the fastest growing age demographic on Facebook.
Finally, another emerging market is online dating. Divorce rates are soaring in the US and UK as new pensioners suddenly face the prospect of spending a lot more time with their partner. “Americans over 60 are now getting divorced at twice the rate as they were in 1990.” The Economist shows. Popular dating sites have seen the group between 53 and 72 grow faster than any other age group. Again, highlighting the need for connection and technology.
We need the financial services industry to innovate and change. Why?
You may be retired for longer than your entire working career. It’s likely that you will be healthy and energetic for most of those years. Women over 65 are also twice as likely as men to end up living alone. All these factors can be problematic if you don’t have enough savings. The financial services industry is in a unique position to make a difference, by innovating, guiding and educating people.
These are some of the important issues they should address:
- Longer lives mean people need larger pots of money and more flexibility in the way they use their money. Products therefore need to be designed with this in mind.
- We need to find ways of resolving the problem of under-saving pre-retirement and over-saving post-retirement. This is where we believe the importance of proper financial planning and guidance cannot be underestimated. Under-saving and underestimating how long someone will live can be a costly exercise. So too should people with sufficient capital and wealth build the confidence to spend freely what they can afford.
- A more creative approach is needed to the range of assets that retirees can draw from. For example, many people’s biggest asset is their home, yet it cannot provide income into retirement. Is it possible to create a product where this asset can play a part in funding their longer life? Reverse mortgage for example allows you to exchange your home for a stream of income.
Another radical approach is to reduce tax on retirement income. By making retirement income tax-free you can extend your retirement capital by a decade!
Through medicine and healthy lifestyles, life expectancy has increased rapidly. Fields such as stem-cell research, regenerative medicine, biomedical technology and genomics can be even more disruptive and we need to start preparing for it now. Economies and social structures will be greatly affected, but with more time, comes more opportunities. How we use these opportunities?
Resources: Dawn of the pre-tiree. What to call the time of life between work and old age? The Economist (2017, July 8th edition) https://www.economist.com/sections/special-reports Rethinking Retirement. Finweek Collective Insight (2017, July edition)