Future Patterns of Work and Retirement: The Evolving Third Age Anna Rappaport, FSA, MAAA Terry...

Future Patterns of Work and Retirement: The Evolving Third AgeAnna Rappaport, FSA, MAAATerry Kozlowski

World Future Society Presentation

Sunday July 19, 2009

11:00am – 12:00pm

World Future Society July 2009 – Future Patterns of Work and Retirement 2

The Quiz – please meet your colleagues and brainstorm answers in groups or two or three before presentation starts

Longer life spans – Each decade, life spans at age 65 are expected to increase about ___ years.

About ___ out of ten Americans over age 55 provide care to family members.

Since Social Security started in the 1930s, the age for full retirement benefits increased from 65 to ___ . From 1940 to 2000, the life expectancy of men aged 65 increased from 11.9 to ___ years.

About ____% of Americans stop working in steps before finally exiting the labor force.

About ___ out of ten Americans end up retiring before they planned to.

In 2000, mean at age 65 were expected to live an average of 15.9 years and women an average of ___ years.

World Future Society July 2009 – Future Patterns of Work and Retirement 3

The Quiz Answers

Longer life spans – Each decade, life spans at age 65 are expected to increase about 1 years.

About 4 out of ten Americans over age 55 provide care to family members.

Since Social Security started in the 1930s, the age for full retirement benefits increased from 65 to 67. From 1940 to 2000, the life expectancy of men aged 65 increased from 11.9 to 15.9 years.

About 50% of Americans stop working in steps before finally exiting the labor force.

About 4 out of ten Americans end up retiring before they planned to.

In 2000, men at age 65 were expected to live an average of 15.9 years and women an average of 19.0 years.

World Future Society – Future Patterns of Work and Retirement: The Evolving Third Age - July 2009 4

Who Are We and Who Are You?

Anna Rappaport Terry Kozlowski


Establish Common Context Establish Common Context

What We’ll Explore Today

Explore Three Life StagesExplore Three Life Stages

Discuss ImplicationsDiscuss Implications


Trends and RealitiesDemographics—aging populations

Country Current Projected 2030

Canada 3.44 1.72

China 5.54 2.26

India 7.01 4.19

Italy 2.36 1.33

Japan 2.44 1.36

UK 2.64 1.59

US 3.33 1.90

Source: p. 61-63 Global Aging Capital Market Implications, Goldman Sachs, 2001

retirees=

= working age adults

Declining fertility

rates: fewer workers

Aging population: older workers

Increased life expectancies: longer retirement

Reasons & Implications

Changing ratio of active workers to retirees


World Population Aging - Producing Unprecedented Changes in All Societies

Unprecedented & Irreversible – By 2050, number of older persons (60+) will exceed young (under 15) for the first time in history

Pervasive and Profound – Includes social, economic and political impacts

Enduring – By 2050, 21% of people in world (2 billion) will be 60+. Two to five times as many women as men at oldest ages.

Fastest growing age group is oldest-old (80+). One fifth of all older persons by 2050

Differences in more developed and less developed regions in number and proportion and time to adjust to consequences of population aging

Source: United Nations World Population Ageing 1950-2050 Executive Summary


Big Issues: Industrialized World

Role of governmental programs, employers, and individuals– How risks are shared and managed

How much choice and individual responsibility– Too much choice = bad result*

Mandates (i.e. everyone must save 9% as in Australia) vs. voluntary action (401(k) plans and IRAs in the United States)

Gradual retirement/facilitating work as part of retirement Methods of payout of retirement funds

– Life income with survivor benefits as in Social Security – Lump sums, as in most 401(k) plans

Retirement ages and adapting to aging society

* Good resource: Nudge by Thaler and Sonstein


Three Life Stages

Working + Living (WORKING)

Living + Working in Old and New Arrangements + Drawing upon income source(s) (THE THIRD AGE)

Living + Drawing upon income source(s) (RETIREMENT) (NOT ABLE TO WORK OR CHOOSE NOT TO WORK)

The Last Stage Likely to Include Periods When People Are Active, Limited And Severely Limited

Note: Stages are fluid and not rigid


Regarding Retirement: Some Key Stakeholders

1. Individuals

2. Employers

3. Policymakers

Social Security

Policy drivers for work options, pensions, taxes

4. Society

5. Financial service industry

+ Advocacy groups

+ Organized labor

+ . . .

Interests overlap and sometimes are in conflict


Different Perspectives on Retirement

Individual point of view – frame of mind, phase of life, economic status, and varies a lot by person

Employer point of view – retiree is an individual with prior long service who may be getting a benefit (or have received one)

Public policy point of view – individual who should get some form of support to replace or supplement earnings

Societal point of view – defined by types of activities, sources of support and maybe age

Financial services industry point of view – opportunity to support accumulation and spend-down periods


Ages of Transitions Between Life Stages Driven by . . .

Individual and family choices, behaviors, actions, Large societal impacts and drivers Risks and circumstances beyond individual’s control Individual’s capability, driven primarily by health condition:

– Active– Somewhat limited– Very limited

Family caregiving requirements Change in family status (death of spouse, divorce,

marriage)


Establish Common ContextEstablish Common Context

Working – Retirement – Third Age

Explore Three Life Stages Explore Three Life Stages



Working



Mature Worker Realities

Baby boomer – very large group in mid-life– 78 million baby boomers in USA– By 2010, 1 out of 3 workers will be age 50+– 55+ labor force will grow by nearly 50% from 2002 to

2012 Economic crisis has largest effect on group nearing

retirement Offer lot of experience/often wisdom Many companies will face brain drain – key roles Obstacles to work options

– Age discrimination– Higher health care costs– Some jobs require physical effort/difficult– More disability in this age group


How Patterns of Work and Retirement are Evolving – Current Workplace Factors

6 million jobs gone, 9.4% unemployment rate in USA – Older workers losing jobs faster than any other

age group (3.2 to 6.2% in last year)– 1.8 million 55 and older looking for work in

March 2009 (Source: Bureau of Labor Statistics)

– Job search time typically 25 weeks or more for 55+ compared to 18.7 weeks for younger and salary often lower (source: AARP)


How Patterns of Work and Retirement are Evolving – Current Workplace Factors

All ages currently working may have been affected by hiring freezes, salary freezes, furloughs, pay cuts, reduced overtime, full to part time reductions– 27% of 45-54 age group looking for new employment because

of uncertainty about current employment per AARP survey in May 2009

– 22% of 45-54 age group felt it was at least “somewhat likely” that their job would be eliminated in the next year per AARP survey in May 2009

Age group ___ to ___ has the highest rate of entrepreneurial activity (experience + savings) Source: Kauffman Foundation


Phased retirement already exists informally

In the past 12 months, have you worked for pay . . . ? (Retirees, n=400)

Not worked for pay at all

70%

Full or part time for only part of the year

8%

Part timethroughout the year

10%

Full time throughout the year

12%

Source: Society of Actuaries, 2007 Risks and Process of Retirement Survey

18


And phased retirement will likely increase in the future

67%

12% 10% 8%

40%37%

20%

1%

Retirees (n=385) Pre-retirees (n=266)

Which statement comes closest to describing how you retired/plan to retire from your primary occupation? (Among those providing retirement age from primary occupation)


Stop working all at once

Continue to work for pay part time

or periodically

Gradually reduce the number of hours you

worked before stopping completely

Continue to work for pay full time

19


Few retire at the same time as their spouse

69%

11%

19%

34%29%

32%

5%<.5%

You Both together Your spouse Don't know

Retirees (n=248) Pre-retirees (n=213)

Who retired/will retire first? You, your spouse, or will you and your spouse retire together? (Among married retirees and pre-retirees providing retirement age from primary occupation)


20


Encore Careers – combining income and personal meaning with social impact

“Potentials” = interested, see retirement as “second chapter of meaningful work”

“Traditionals” = not interested, see retirement as rest and recreation

Differences: Health status, Age, Planful Competence, Social Isolation– “Planful competence”

Job level Education level Pension, healthcare, economic resources

Recommendation: Need to widen pool of available encore jobs with more control over time and timing of work, policy implications

Source: http://civicventures.org/surveys.cfm


Flexible or Alternative Work Options

Flexibility through schedule, duties, place of work and relationship with employer– Schedule: Compressed work week, Part time

Work, Flex time– Place of work: Telecommuting– Relationship with Employer: Consulting,

Temporary– Duties: find match between individual desires

and organizational needs– Structure new relationship: Job share,

Entrepreneurship


Retirement



Evolving Responsibilities for Retirement

Social Security key to economic security Lot of reliance on individual decisions Employer role in security

– Private large companies – big– Small companies – limited– Public sector – nearly everyone covered (mostly

DB) Financial crisis

– Some retired back to work– 27% of 55-64 age group postponed plans to retire

per AARP survey in May 2009– Some people raiding retirement savings to cover

immediate needs

24


Retirement Trends: Defined Benefit to Defined Contribution Evolution

Workers with retirement coverage, by type of plan: 1983 to 2007

YearDB only

(e.g. Pension)DC only

(e.g. 401(k))Both

1983 62% 12% 26%

1995 29% 56% 13%

2007 17% 63% 19%

Source: Center for Retirement Research, An Update on 401(k) plans: Insights from the 2007 SCF, March 2009

Notes:• 55% of private sector full-time full-year wage and salaried employees

have pension coverage • DC plans offer a lot of employee choice• DB plans widely used in public sector and for multi-employer plans (union

– management sponsored)

25


Not Only What People Know . . . But What They Do

US savings rates are low People save much more when they have access

to employer plan Many gaps in knowledge about retirement

– Few think long term– Assets vs. expectations: out of step– Problems with math literacy, investment

knowledge– Little focus on systematic risk management– Little understanding of long term risks

26


Individuals’ Retirement Impacted by Decisions on How and When Benefits are Paid

People say they want income but choose lump sums

Distribution of benefits: lump sums vs. income– DB: lifetime income common – DC: lump sums usual in US but growing

concern as these plans are primary Big policy issues:

– New defaults for DC plans– How to prevent leakage: how much early

access should be allowed and when?

27


Retirement Factors in the Economic Crisis

Many people need to work longer, but hard to do so – 4 out of 10 people retire earlier than planned

Defined Contribution: Little change in participation Creates challenges for more affluent near retirees and

already retired

– Reduced 401(k) balances – average loss of 25%+ from 1/1/2008 to 1/20/2009 – accounts of $200,000+ and 56-65 year olds with 20+ years of service

Shift to DC plans compounds issues for individuals Defined Benefit: Major challenges for employers

28


Policy Makers Facing Controversy about 401(k) Plans

Huge growth in these plans Heavier reliance on default options: Growth of auto-

enrollment, life cycle funds in DC Advocates

– Big success/contribution to retirement security– % of participants taking hardship withdrawals under 2%

Voices of Critics – Too many people have been left out of the system– Too much risk and exposure to market swings– Lump sums at retirement and leakage– Critical of investment options, expense disclosures– Tax benefits go largely to more affluent

29


Summary: Retirement Successes and Failures

Successes People who can choose to

retire Many retirees doing well –

many with DB income Social Security benefits 401(k) plans

– Account balances

– Auto-enrollment and new defaults

Large plans well funded before the financial crisis

Public plans

Failures Inadequate knowledge,

motivation to deal with decisions, savings

Many people with no employer pension – small ERs, part-time, job changers, etc.

Inadequate savings 401(k) plans

– Account balances– Using money too early

Hard to find work Freezing of DB plans Too many lump sums

30


Third Age



Third Age and/or Middle Period Factors

Redefinition of retirement Many possible paths and different transitions Limit on how long individual can work?

– Few will work after age 75 Focus on productive aging

– Range of options for activities– Community engagement (civic ventures)

Couple issues– Timing of retirement– Changes after death of a spouse

Physical abilities change


What older Americans do with their time varies by age...

19

34

28

9

38

52

35

29

51

62

34

65

52

33

39

39

0 10 20 30 40 50 60 70

All55-6465-7475+

33

Caregiving

FormalVolunteering

Work

InformalVolunteering

Percent of Adults Age 55+ in 2002

Source: Butrica, Barbara, How Do Older Americans Spend Their Time, Urban Institute


…and health status

34

35

19

20

38

51

31

39

42

63

43

51

52

33

39

39

0 10 20 30 40 50 60 70

AllExcellentGoodPoor

34

Caregiving

FormalVolunteering

Work

InformalVolunteering

Percent of Adults Age 55+ in 2002



Who works past age 65?


35

15

25

21

25

18

19

14

13

20

8

0 5 10 15 20 25 30

Percent of Adults 65+ in 2002

FemaleMale

Not MarriedMarried

Health PoorHealth Good

Health Excellent

High WealthMedium Wealth

Low Wealth


Although the nature of work varies significantly by wealth…


36

22 2117

30

10

45

25

50

0

10

20

30

40

50

60

SelfEmployed

PhysicalEffort

Professioal Full TimePe

rce

nt

of

Wo

rke

rs A

ge

65

+ in

20

02

Low Wealth High Wealth


…satisfaction with work does not


37

94

45

18

96

49

18

0

20

40

60

80

100

120

Enjoy Working Happy withCurrent Hours

Will Never StopWorking

Pe

rce

nt

of

Wo

rke

rs A

ge

65

+ in

20

02

Low Wealth High Wealth


However, retirement satisfaction varies by the type of engagement


38

Work and Volunteering

Formal Volunteering Only

Caregiving and Volunteering

Caregiving Only

Multiple Caregiving Tasks

Formal and Informal Volunteering

-13.4

-4.1

4.4

9.1

8.8

8.1

-15.0 -10.0 -5.0 0.0 5.0 10.0 15.0

Retirees Age 55+ in 2002

Percentage Point Change in Satisfaction


Final Thoughts



Discuss Implications Discuss Implications


Don’t Forget Multiple Stakeholders

1. Individuals

2. Employers

3. Policymakers

Social Security

Policy drivers for work options, pensions, taxes

4. Society

5. Financial service industry

Interests overlap and sometimes are in conflict


Key Question for Individuals: Will longer life mean longer work or longer retirement?

People expect to retire later, but so far – few do About 50% work in retirement or have bridge jobs Virtually no formal phased retirement (private

sector)– Barriers to pension payment with part time

work 40% of people retire before they planned to

– Loss of job and poor health – major factors 70% of people say they want to work some in

retirement Health insurance major challenge prior to

Medicare eligibility

41


Key Questions for Employers: Their Role in Retirement Security

Should employer offer benefits, facilitate them, or opt out? Should employer be primary source of security?– Offer benefits and pay for them– Offer programs for individual saving– Provide plans that limit lump sums – can

mandate income for all of part of the benefit– Serve as purchasing agent– Offer access to pools– Create expectations and provide information– Advise and educate

42


Making Retirement Work: Concerns of Employers and Employees

Employers Helping employees realize the

benefit of the funds they have accumulated

Securing retirement for employees

Managing fiduciary liability Winning loyalty and

appreciation from employees Supporting talent

management policy Keeping administration simple

and cost effective

Employees Housing and asset losses Timing of retirement Dealing with confusion Managing money in

retirement Finding good advice Being able to deal with

emergencies Leaving money to heirs Making money last Not losing money

43


How Things Might Evolve – Four Possible Societal Scenarios with Implications

I – Continue Present Trends

II – Increase Retirement Ages

III – End of Retirement

IV – Move to New Patterns of Retirement

Source: See Future Patterns of Work and Retirement -- The Evolving Third Agein your copy of Innovation and Creativity in a Complex World


I – Continue Present Trends

Role of retirement systems in society is unchanged

Most people leave full-time labor force at 60-67 About 50% work on some basis after they

have left full-time work Big difference in pension benefits and assets

by person Those who had long term jobs often have

traditional pensions Older women alone least well off Big variation in experiences of those who try

to get work


II - Increase Retirement Ages

Role of retirement systems in society is unchanged

Major increase in retirement ages No significant change in role of the family Pension implications

– Enable phased retirement

– Enable age 70 normal retirement ages

– Total resources needed decline – shorter retirement period

Increases labor supply at older ages Increases need for work options Increases need for disability benefits


III - End of retirement

Retirement systems and pensions disappear Major increase in labor supply at older ages Major increase in role of the family Increases need for work options Increases need for disability benefits Increases need for social safety net Greatly increases number of people in

poverty/near poverty

Author’s opinion: very undesirable result


IV - Move to new patterns of retirement

Many similarities to II --- Increase in Retirement Ages

Retirement is much more of a process Work options are critical Period of work at reduced level is normal – Third

Age Increase in age of total withdrawal from labor force Increases labor supply at older ages Traditional final average pay plans are not a good

fit Need methods to use retirement resources

gradually while working

Author’s preferred scenario


What We’ve Explored Today





Future Patterns of Work and Retirement: The Evolving Third Age

Terry Kozlowski- call 800.401.0607 http://achievementorgroup.com

Anna Rappaporthttp://annarappaport.com

Contact Presenters for Questions and Continued Conversation

http://achievementorgroup.com/

http://annarappaport.com/

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