How well prepared are we to sustain ourselves and future generations into old age? A new report from the World Economic Forum (WEF), created in partnership with Mercer — We’ll Live to 100: How Can We Afford It? — reveals that longer life expectancies, shrinking old age dependency ratios, persistently low interest rates and a shifting of the burden from governments and employers to individuals are contributing to a huge and growing gap between long-term savings and the current and future income needs of billions of individuals.
In Mercer’s view, we can meet these challenges and mend the gap — but doing so will take concerted action on the part of all stakeholders, including governments, employers, financial intermediaries and individuals. Bold solutions are needed — and helping to identify those solutions goes to the core of Mercer’s mission to make a difference in the lives of people by advancing their health, wealth and careers.
As societies age and the nature of work continues to evolve, it is clear that old notions of work and retirement will need to give way to a spectrum of new possibilities for when and how to work and what it means to retire. Societies, employers and individuals themselves will all benefit from greater acceptance of and more accommodation for working later into life.
This may mean raising or even eliminating set retirement ages to reflect the fact that people live longer today than in the past. This action could go a long way toward improving the solvency of government pension systems.
Different expectations around work and retirement on the part of employers and employees could also help both. Economies around the world, including the US, Mexico and China, are getting back toward full employment, and it is not clear that employers can afford to let individuals with scarce skills simply walk out the door in their mid-60s. These older workers possess significant experience and competencies that are extremely valuable to the business. Moreover, falling birth rates mean a shrinking replacement talent pool. Those employers that figure out how to keep valuable employees longer will have a competitive advantage in the war for talent.
Individuals also stand to benefit from new norms around how and when to retire. Given that half of those born today in many societies will live to see 100, a traditional working life of 40–45 years just won’t be sufficient to support 80 years of adulthood. Those who try will have to work ceaselessly throughout their working years while limiting spending. Nonetheless, they are unlikely to be able to maintain their standard of living through a 40-year-plus retirement.
“Now imagine a different society where people work another 20 years or so beyond ‘normal’ retirement age, although perhaps in different capacities or with a reduced schedule,” says Rich Nuzum, Wealth Leader, Growth Markets Region. “That’s 20 more years of productive economic endeavor — paying taxes, paying social insurance premiums and generating income that is not retirement income."
"It means that individuals are still investing in their careers and investing in their human capital into their 50s and beyond. So society is benefitting from their human capital and they are getting greater value from society. They are also probably happier because people who simply stop work completely at a given age often experience rapid declines in mental and physical health.”
The time to act is now. By applying creative and strategic solutions like this one, we can transform the future reality for individuals and societies. Both government and employers have a critical role to play — and Mercer consultants are currently working with both on forward-thinking solutions to help them mend the gap.