Rethinking retirement

It wasn’t until the 1880s that the Prussian chancellor, Otto von Bismarck, saw the threat Marxism posed and to combat it agreed to pay a pension so people could cease working at 65. Life expectancy at the time, however, was 62.

In Australia, the age pension was introduced in 1909 for people who reached 65, when life expectancy was barely 60.

A few years of state-supported rest were the reward for a life of work.

Now, almost all elements of the retirement consideration have changed. Not just simple issues of longevity – that 60 is the new 50 – but elements such as that we’re expected to save for our own retirement, together with attitudes to work, leisure and retirement itself.

Reference to an online dictionary will reveal one meaning of retirement to be “the act of going away or retreating”.

For many, either to retreat or to hide from sight is neither an option nor a goal. These people may be split into voluntary and involuntary non-retreaters.

For a significant proportion of people, work isn’t drudgery or the mere means by which to earn a living. They’re fully invested in their work as a part of their life-fulfilling activities. Work has its own rewards beyond money. To totally and abruptly cease work upon reaching an arbitrary age like 65 is not a life goal. Increasingly and voluntarily, many people want to continue to be involved in work, with all the intellectual and social engagement provided by continuing to work for pleasure and reward.

Another cohort includes those who have either not earned enough in the early part of their working lives or diverted too much disposable income to consumption and not saving. In previous decades, the household savings ratio was much higher than today. It was more common to divert disposable income to saving or debt elimination in the expectation of embarking upon a usually limited set of life-affirming experiences upon ceasing work in the usually limited “golden years”.

Nowadays, for various reasons, people are “experiencers” during the currency of their working lives by doing such things as travelling, upgrading properties and supporting dependants, and often relying on debt to enable them to embark upon these experiences. The new version of weapons of mass destruction is the phenomenon of reaching retirement age with masses of debt. This cohort is the involuntary non-retreaters.

What does this all mean for financial services professionals?

Well, it means they should recognise that attitudes to retirement are increasingly nuanced and that the old paradigm of “the majority of people looking forward to or expecting a total cessation of work” is no longer relevant.

Financial services professionals should take heed of their products, distribution methods and marketing material to address the multifaceted needs of their customers or potential customers.

“Fear-based marketing” – including such crude instruments as the retirement savings calculator and how much is enough-type marketing – really needs a rethink. Retirement shouldn’t be something to be feared, whatever form it takes.

The presumption that most want to cease work entirely and that this is the ‘end’, with the ‘means’ having little value, also needs major thought. Marketing material and/or products based upon the ‘retire sooner’ assumption are increasingly likely to lack relevance. Many people who say they are looking forward to retirement are really saying “I don’t like what I’m doing now” or “I’d like to rearrange my work activities in some way”.

Strategies focused on wealth creation really need major examination. Realising capital gains, particularly from the sale of real estate at a finite point in the future, goes hand-in-hand with the notion of there being a finite point of cessation of employment. For many, this won’t be the case or an option, so investments that augment retirement savings and a lesser amount of work-based income will be of greater importance than the receipt of lump sums.

Finally, the concept that needs the biggest rethink is the concept of retirement itself. To retreat, to hide from view, to cease all forms of work to live a life of ceaseless leisure just isn’t in the minds of many. For credit providers and advisers, financial planners, fund managers and other financial services professionals, what has previously been termed retirement will increasingly become something more like “rearrangement” or “devolvement”, and products and services will need to reflect this.

As has been noted by another commentator, the worst thing about retirement is that you never get a day off. In the future, more and more will view retirement this way.