The 100-Year Life: Part 1 – Retirement

This article was originally published on Quadrant Group’s website. Quadrant Group was acquired by Progeny in March 2017.

Does the prospect of living to 100 years old thrill you or terrify you? Can you imagine yourself happily opening the telegram from the Queen (or King) a century after you entered the world or do you imagine your life to be more suited to a shorter, higher-quality ‘three-score-years-and-ten’?

For many of us who may already have occupied our planet for a little while, a 100-year life might seem like a pleasant prospect. However, for our children and grandchildren, there’s a very good chance they will still be around to celebrate their own centenaries. A child born in the West today has more than a 50% chance of reaching 105. Contrast this with the odds of a child reaching that age if they were born a century ago (1%) and it’s clear that the twentieth century has witnessed a dramatic increase in life expectancy.

It’s a sliding scale, as whatever stage we are at in life, we can expect better odds of reaching a higher age. Our life expectancy has expanded at a steady rate of over two years every decade which means that if you are 20 years old today, you have a 50% chance of reaching 100; if you’re 40, the same chance of making it to 95; and if you’re 60, also a 50% chance of seeing your 90th birthday.

Blessing or Curse?

Lynda Gratton and Andrew Scott, both Professors at the London Business School, are interested in what this means for our society and the inevitable changes it will bring to the way we plan and live our lives. Their widely-celebrated text on the topic The 100-Year Life: Living and Working in an Age of Longevity’ was published last year and tackles the subject head on:

“This lengthening of life is a crucial topic, so why has so little of it been written about it in the popular press? This is not an issue that affects just a few, it affects everyone; and it’s not a distant problem, it’s happening right now.”

Gratton and Scott acknowledge that lack of popularity on the topic is down to the dilemma at the heart of increased longevity – does it represent a blessing or a curse? We’d all like the extra time on earth but would we want it if it meant extended years of frailty or dependence on others? They argue that with lengthy foresight and appropriate planning we can accept this gift as a blessing, but not without major alterations to how we anticipate, view and structure our lifespans.

The Death of the Three-Stage Life

The key to understanding their outlook lies in assessing how we plan our lives. The traditional pattern we live by is the three-stage life of education, work and retirement. This template suited (and still suits some members of) a society where people generally stayed in the same profession all their lives and died in their 70s or 80s, but the authors argue that it is now no longer fit for purpose. In their new view of the world, they argue that we need to think more creatively and beyond the constraints of the traditional but outmoded three-stage life, to become used to the idea of a multi-stage life with more variety, career breaks and transitions. Over the next three posts, I intend to look at each of these three traditional stages (education, work, retirement) individually, considering how Scott and Gratton’s hypothesis will change the way we think about each.

Retirement is the one which is the most interesting and probably the most relevant for most of us – we’re all either on the way there or there already – so I’ll start with this and turn my attention to work and education in the following posts.

What Does Retirement Look Like in a 100-Year Life?

As life expectancy lengthens and retirement age stays the same, people are faced with the prospect of a significantly smaller pension or having to work longer. As the authors observe, “no wonder a longer life feels like a curse – neither option is attractive.” But they argue that this new terrain provides us with new opportunities and that by accepting that this revolution is going to occur we stand on the brink of creating a completely redesigned social construct.

For some of us, perhaps not much will change. If you are nearing the end of your career or have reached retirement age already, then it’s likely that you will have been one of a steadily-reducing number of the three-stage-life generation to find this model beneficial and sufficient for your needs. Conversely, if you’re entering the work force now it’s certain that your career and retirement trajectory will follow a very different path. Gratton and Scott look at some examples of what the experience might be for the average person at key stages in their life to help demonstrate how things will change in future.

The 70-year-old: they will have begun working and entered the economy in the ‘Golden Age’ for developed economies and are likely to have stayed in the same industry all their life. On retirement at 65, typically, they will benefit from a State pension, a generous work pension and, assuming they were a relatively high earner, could have been expected to build up a decent-sized fund of personal savings too. We can assume that this retiree could have comfortably built up a pension pot to account for 50% of his or her final salary.

The 45-year-old: things aren’t quite so rosy for the 45-year-old who is seeking to retire by the age of 65. Company pension schemes are becoming more and more scarce and State pensions are under pressure and less generous than they once were. The direction of travel is becoming obvious: the burden of saving is being transferred to the individual. A guaranteed pension of 50% of final salary for today’s 45-year-old might see them needing to work beyond 65 years of age and into their seventies.

The 20-year-old: If the three-stage life is not entirely sufficient for the middle-aged worker with 25 years of pension contributions behind them, then it’s certainly not going to be able to deliver a decent standard of living for someone only entering the employment market now. Working for 45 years until they are 65 and then retiring for potentially 35 years makes for an unsustainable saving burden on the individual, and is likely to be beyond anything the average person could realistically afford to put aside.

When faced with the stark facts (and I would recommend reading the book in detail for an illuminating breakdown of the figures), many people instantly go into denial and try to drum up ways they can get around a likely pension shortfall in an age of longevity. People might imagine they can live on less than 50% pension, but this is a relatively conservative figure – many people would require more than this. They might plan to seek greater returns from their investment portfolio but this necessarily requires taking greater risks and can’t be condoned as a sensible solution to a society-wide problem which isn’t going to go away.

The reality is that a large proportion of us are simply going to need to work for longer and to do this will require shaking off the out-dated idea of learning only at the beginning of our lives. I’ll look at how work and education will be transformed over the following blog articles but I’ll end by sharing the authors’ vision for what’s required to help us prepare sufficiently for retirement in this new landscape.

The New Retirement Model

They emphasise the importance of financial efficacy, the fact that a higher level of financial literacy makes us more self-aware as financial beings and also more in tune with what’s occurring in the wider financial world. A change in the nature of the financial services industry and the products it offers is also envisaged:

“..because of the dominance of the three-stage life, current long-term financial planning is invariably focused on pension provision. The financing of a multi-stage life requires both saving for the drop in income after retirement, but also the fluctuations in income experienced across the stages… Lengthening time horizons and more periods of income fluctuation will result in major changes in how the financial sector works and the products it offers.”

As important as financial efficacy is financial agency. Without the self-control to act in accordance with this knowledge and insight, results can be undermined. Gratton and Scott point out that “the future will last longer now for everyone so it’s crucial to balance current actions with future needs.” Correctly accounting for your future self – which, when you begin working, could be many, many years away in the future – is vital in helping you build a comfortable retirement. Setting goals and sticking to a financial plan, despite short-term temptations and market fluctuations, is paramount.

At Quadrant, combining knowledge and insight with careful long-term planning is what we do when structuring a clients’ portfolio and planning for their financial future. We work closely with clients to define their goals and put in place a far-reaching plan to ensure that, however long they live, they are well-prepared for a happy and comfortable retirement. If you would like some help in planning for your retirement or planning for your financial future, please get in touch.

In the next article, I will be considering how rethinking the three-stage life will impact on the pattern of our working lives.

Update: Parts two and three of this series, covering work and education, are now online. Read part two here and part three here.

This article does not constitute financial advice. Individuals must not rely on this information to make a financial or investment decision. Before making any decision, we recommend you consult your financial planner to take into account your particular investment objectives, financial situation and individual needs. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested. This document may include forward-looking statements that are based upon our current opinions, expectations and projections.

This article is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable but is not guaranteed.

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Andrew Pereira

Director, Wealth

Andrew has been working with families, high-net-worth clients and business owners for well over 20 years.

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