Aging was much simpler in the old days. For centuries, if not millennia, most people’s lives have taken place in three stages: apprenticeship, leading to employment, and then retirement.
But in 2022, thanks in large part to the wonders of technology and improved healthcare, the traditional notion of old age is evolving. As a result, life is most exciting. Now the so-called retirement age could, and should, be embraced as an additional phase of life, one of new freedoms, be it hobbies, business or passion.
Retirement is no longer a period of liquidation or dependency. On the contrary, the concept will soon expire, argues Andrew Scott, a world expert on longevity and a professor of economics at the London Business School.
There is no need for a pipe and slippers in the 21st century. The most recent data from the Office for National Statistics (ONS) shows that the number of people in the UK aged 85 and over was a record 1.7 million in 2020. That number is forecast to nearly double to 3, 1 million by 2045.
In addition, the ONS estimates that life expectancy at birth in 2020 was 87.3 years for men and 90.2 years for women. Consider, in the early 1980s, these figures were 70.8 and 76.8 years, respectively.
The increase in life expectancy and the age of the population go hand in hand. And this trend is global: the median age of the world’s population in 1970 was 21.5 years, and almost 31 in 2020, according to the United Nations Population Division.
Taking steps for a more rewarding retirement
However, to make the most of the possibilities of old age, it is essential to act today to have a more rewarding tomorrow, Scott urges.
“Now there is a greater risk that you will outlive your wealth,” he says, referring to stashed savings and pension funds that have been the typical source of funds for retirees. “So you need to invest more in your future self. One of those key investments is funding, but health, relationships, and engagement: Developing good health, skills, and relationships all play a role. However, any financial plan must be dictated around your life plan.”
In 2016, life of 100 years – A book written by Scott and Lynda Gratton, Professor of Management Practice at London Business School, was published. And while it’s often said that “age is just a number,” could it be that we’ve been using the wrong measurement all along?
“It was randomly decided that 65 is ‘old,’” Scott continues, “and the older I get, I’m 50, the more I dislike it as a starting point. While more people are living longer, that doesn’t take into account changes in the way we age, or in our health or behavior.”
He believes that the way we define old age “requires a rethink because traditional age, measured chronologically, is confusing” and often misleading with respect to life expectancy. “We need to focus on biological age rather than chronological age,” says Scott. “And we also need to consider more the prospective age, that is, the number of years we have left to live. For example, the average Briton has never been that old but has never had that much time left to live; this is how we have to adjust our thinking.”
Clearly, good health and good wealth are mutually reinforcing in living as long and full a life as possible. But does this require both a change in mindset and a change in investment strategy? For example, Tony Müdd, director of St. James’s Place’s technical consulting and development division, suggests that pension plans are a good idea, but you can tailor contributions to match your earning potential. At age 50, you’re likely to be in a better financial position than you were at age 20, so why not increase your contribution?
Think beyond pensions
And while a pension will provide a good chunk of income for many people in the future, it’s far from the only source. Müdd highlights the benefits of a diversified portfolio of tax-efficient investments, perhaps in property or other assets.
He points out, however, that while a later life full of adventure, excitement, and new opportunities is the ultimate goal for most of us, the reality is that poor health can kill sleep. Müdd worries that people often take a “head-in-the-sand approach” to monitoring their health. He points out that a quarter of people in the UK over the age of 70 will require long-term medical care.
“It’s a subject that people don’t like to think about, but long-term care can be very expensive, costing millions of thousands of pounds,” he warns. “Many people in the UK are sleepwalking into a position where they won’t get the level of care they think they should from the local authority, so they will have to pay for it themselves. That could deplete your children’s inheritance. You can take out insurance, but people tend not to. So the only way to deal with long-term care is to save money effectively.”
Moving quickly away from the grim subject of impending doom is Michael Clinton, the longtime president and editorial director of Hearst Magazines. his book, ROAR: Towards the second half of your life it was published recently, in September 2021. And two years after becoming a septuagenarian, he is speeding up, not slowing down.
He counters the thought that people have mid-life crises, but rather “wake-ups.” Clinton explains: “At 50, you know a lot about yourself. Now is the time to tap into your awakened self and move on. If you’re 50 and healthy, you’ll have a good chance of living into your 90s. That will mean second and third careers, new relationships and lifestyles. Suddenly people say, ‘I don’t want to retire; I want to rewire. I want to finish, not relax.’”
“Retirement is no longer viewed as a binary outcome, meaning you don’t stop working when you retire now,” says Scott. “Retirement used to be like a cold shower, and now people want a warm bath more. So-called retirees often work part-time with their current employer or start something themselves. Furthermore, within two years of retirement, one in five people ‘does not retire’.”
He concludes by predicting the disappearance of retirement. “If you think about the 100-year life, there must be a change from a three-stage life (education, work, retirement) to a multi-stage life.” Scott adds, “We’ll get to the point before long where the concept of retirement itself, if you define it as permanent termination of employment, will be retired.”
Now in her 50s, Kim Uzzell, a wealth management coach for women and a former banker, had her two children in the 1990s. This prompted her to stop the payments she was helping to his retirement fund. Having the money to pay for more pressing needs like childcare has become more important than one’s own future.
It is a cycle that reflects life events that create and magnify the gender pay gap. But Uzzell warns that the gender pension gap – the difference between the financial security of retired men and women respectively – is much worse.
“A 10% pay gap in the UK is shocking enough. But nobody talks about the fact that the pension gap is 43%. We are tackling part of the puzzle, but the pension gap is incredibly wide and not moving in the right direction because the gap is so big,” Uzzell says.
“We left it so late, chances are half of a relationship can afford to stop working when they reach retirement age, and then the other half either has to become financially co-dependent, or continue to work.”
A new study commissioned by NOW: Pensions reveals that women are reaching retirement age with the biggest retirement savings deficits ever recorded. The average woman in her 60s will have a pension pot of £69,000, while an average man of the same age will have accumulated pension savings of £205,800. Women would have to work an additional 18 years, full-time, to reach that amount, according to NOW: Pensions.
But a new wave of fintech startups could help change that, making women more financially conscious and confident in decision-making. Finance and Smartpurse are education and coaching platforms that aim to increase women’s financial knowledge. Half of British women would choose to invest through an online platform or website, according to information from financial advice provider Fidelity. The ability to get regular updates on their investments is the top motivator for 27%, while 19% say regular nudges and reminders are a key benefit of managing their investments online.
Addressing the gender imbalance in fintech
But these apps and websites are doing more than repackaging finance for a female market. For Olga Miller, a former Swiss banker who co-founded Smartpurse in 2019, it’s a chance to address the biggest gender inequality issues that have plagued the broader financial sector for years.
Fintech startups are determined and nimble in hiring female financial advisors, which are lacking in traditional banking – pushing women away from finance and taking personal responsibility, according to Miller. Smartpurse’s own research shows that 54% of UK women rate their financial planning for retirement as poor.
“There are too few women in key positions in financial services. But even if you mainly receive applications from men, the women are there, but you have to double the effort to seek them out. It’s part of an overall value chain that starts from recruiting through management practices,” says Miller. “A newly created fintech company with a team of just five people doesn’t have the same challenges as a large company to achieve the right level of diversity.”
Another problem, Miller continues, is that a traditionally male-dominated financial industry has resulted in banking and pension brands communicating with language and imagery that doesn’t appeal to or belittle women – something Smartpurse and its counterparts aim to reverse. Indeed, when challenger bank Starling analyzed 600 financial stock images last year, it found that men are more frequently depicted with banknotes while women are relegated to coins, and men are shown signing documents more often than women.
But Miller warns that it’s easy for this same problem to translate into the digital space, with many fintech companies still failing to respond to personalized customer journeys.
“Very few of them look at the language, so women always feel left out. Initiatives like ours and others aim to create a safe space, where women are welcome to learn what matters and are not frequented,” she says. “Women want an advisor who starts the conversation from what the person wants to do with their money, rather than just pitching the next product. It’s hard for the industry to change. Fintechs may see things differently.
Improve financial education
Doing this also involves creating a community and using the language it uses, says Laura Pomfret, who co-founded Financière in 2018.
“We use our customers’ words in our copy. The women say they are “overwhelmed” and “intimidated”, but at the same time they “want to pull themselves together”. So that’s one of the most important things we say,” says Pomfret. Many fintech companies make the mistake, she adds, of focusing on the solution without understanding and reflecting the voice of their customers.
Financielle’s online community also supports its members over the age of 50, Pomfret notes, overcoming all technological hurdles for older users. She gives the example of a member whose 19-year-old spouse had left her, without a pension or financial security. Using advice from the community, she calculated what she needed and found a retirement product that suited her and her ideal monthly contribution.
“Now she’s completely on the right track and helping others with the same problem. The community is the best because she’s seen it all before and helps people learn from their mistakes. It’s really cool,” says Pomfret.
However, Financielle’s strong point is women between the ages of 25 and 40. Pomfret is adamant that targeting women early and making finance as simple a topic of conversation as wellness or entertainment will solve the gender pension gap – without it becoming the exclusive domain of the fintech.
Uzzell, who estimates that about 60% of her all-female clientele come to her with retirement issues, agrees. But she says financial education should be more established and promoted in schools, with employers continuing: “Big companies have a responsibility. The government has a responsibility. Schools and educators have a responsibility. And the media has a responsibility to raise awareness of the gender pension gap the same way it did with the gender pay gap – and to make it unacceptable.
In May 2022, footage of a North Carolina beach house plunging into the sea went viral.
The owner had purchased the property two years prior for $275,000, and its collapse was a stark illustration of how the climate crisis could impact coastlines around the world.
The clip could be seen as an example of “unmanaged retreat”, a growing threat from rising sea levels, accelerating erosion and increased frequency of storms. It would clearly be better to take a pre-planned and “managed” approach to moving from these high-risk areas. But what does that mean, exactly, and what are the challenges involved?
Managed retreat is the practice of abandoning or completely relocating occupied properties built in areas of high climate-related risk, such as coastal or flood-prone lands. A 2018 report by the UK Committee on Climate Change said that 4% of existing homes are at an annual flood risk of 0.5% or more by 2080. Projected economic damage from flooding and erosion mean 33-41 miles of coastline isn’t worth it. defend this century.
However, selling the idea of a managed retirement to the people whose homes are targeted is no easy task.
“At the heart of it all is a decision to be made as to whether a place is worth protecting or no longer economically viable, and no one wants to be told their home isn’t worth worth saving,” says Bob Ward, policy director at LSE’s Grantham. Institute of Climate Change and the Environment.
Managed retirement and insurance
Governments around the world, including the UK, have focused on building strong flood defenses or rebuilding immediately following a disaster, Ward notes. “But should we rebuild or use it as a signal to ask people to move away?”
According to Gary Griggs, a distinguished professor of earth sciences at the University of California, Santa Cruz, the biggest challenge is getting buy-in from a community. In California, the task is particularly tricky because coastal properties tend to be among the most expensive in the state.
“The idea is very alien to wealthy landlords, they have no interest in it,” Griggs says. “But we can’t hold back the ocean. It will therefore be either a managed retirement or an unmanaged retirement.
So far, insurance policies in the UK have not encouraged homeowners to favor a managed pension after a flood. For example, Ward mentions Flood Re home insurance, a government and insurer initiative to make flood coverage more affordable. It has essentially been “a tacit subsidy” for homes in areas at high risk of flooding, he says. “It was effective so there was no price signal to the homeowner that they were in a high flood risk location.”
It’s a similar story in the United States, where Griggs cites problems with the Federal Emergency Management Agency’s National Flood Insurance Program (NFIP). The NFIP offers subsidized home insurance rates for properties considered too risky for commercial insurers. However, these rates have not been updated since the 1970s, again encouraging residents to stay put and rebuild, rather than move away. “They finally got to the point of re-pricing their insurance to reflect the actual losses because the program has gone into debt by billions of dollars year after year,” he says.
When Hurricane Sandy hit New York and New Jersey in 2012, the government bought out some of the coastal homeowners whose properties had been flooded and paid for them to move. The owners could then rent the house until it was no longer usable.
The program was well received, but Griggs notes that homes were only worth $200,000 to $300,000, whereas in some parts of the United States, such as California, homes can cost up to $40 million. Neither the state nor the central government has the finances or the inclination to cover such properties.
Homeowners can redevelop their properties to mitigate flood risk. For example, they could build on stilts or make lower floors fully sealed without electrical outlets, as is sometimes seen in the Netherlands, according to Ward, where there is no tradition of insuring flood-prone properties. However, he says no new properties should be built in areas that are high risk or will become so within the next 80 years.
What about existing at-risk properties that were built before the climate crisis was a factor? “You have to design a system that recognizes and then fairly allocates costs,” says Ward. This includes the costs of losing property but also the costs of relocating in the most efficient way. “We need a societal response, and insurance should be part of that conversation.”
He insists on the need for proper protocol, rather than waiting for disaster. This last scenario is very painful. This is an ad hoc process that usually involves those affected bearing the cost, followed by extensive compensation packages.
“Any kind of economic analysis shows it’s the most expensive option of all.” If managed retirement is done correctly, with conversations starting perhaps 20 years in advance, it offers a more economically viable and less disruptive process, he believes.
“You need the community involved and setting a threshold that they can agree on,” says Griggs. For example, when a house floods once a month or when the cliff comes within two meters of a porch.
It’s not about suddenly stopping in-place investing, says Ward. “You have an investment profile that says we’re going to gradually reduce investments over time and we’re not going to maintain defenses after this point, roads after this point,” he says.
This is exactly what happened in the Welsh village of Fairbourne, where the local council said it could not afford to maintain sea defenses at a cost of £19,000 a year. The village will be gradually decommissioned and become marshy again by 2054.
It’s difficult for the government, which is in the process of drafting a new National Adaptation Agenda, Ward says. However, he must act.
“Unless pressured to tackle it, the government has not shown great enthusiasm to get involved,” he says. “We don’t have a cohesive strategy that emphasizes making good decisions and managing risk. The central government does not have to bear all the costs itself, but it must be the appropriate power to bring together all the different stakeholders.
What if the owners still wanted to take the risk? “Your premiums would go up, the price of your property would go down, and at some point you wouldn’t be able to get insurance,” he says. “But you can’t continue to have a system where not knowing the risk is a better situation.”