Most people facing retirement today are living longer, and average lifespans are increasing nearly across the board. This time on Financial Sense’ Lifetime Income Series, we spoke with Andrew Scott, author of The 100-year Life: Living and Working in the Age of Longevity, about how we can plan for a longer life and what we should do to maximize both our investments and overall happiness.
Rapidly Rising Life Expectancies
Though many of us were raised to think of our lives as taking place in three stages, consisting of an educational phase, a working phase, and a retirement phase, that model isn’t working for many anymore.
With life expectancy increasing, many are struggling to balance investments and are working longer to compensate.
“It’s plausible to suggest that children being born today have a very high chance of living to 100 or even more,” Scott said.
This is partly due to advances in medicine, but also generally better income and improved nutritional intake that comes with it, Scott said. Also, better public health and better public knowledge are playing a huge role in the surge in longevity.
With this shift comes growing inequality, Scott noted.
“Basically, higher income individuals have a very high chance of passing 100 if (they’re) born today,” he said. “Life expectancy is growing everywhere, but obviously, the richer countries have better resources and better nutritional intake. They’ve been advancing for a very long time.”
However, he’s found that the fast-growing emerging markets are starting to catch up. This is likely to strain retirement plans and governments as resource requirements go up.
The Old Models Are Breaking Down
Additionally, people aren’t just living longer, but living better, with more years of activity and better health, Scott noted. This means that the last phase of life is being pushed back.
“The arc of life is being extended for many people,” he said. “So, you’re older later. I guess that means you’re younger for longer. What we expect from people in their 70s and 80s is different from what we used to expect.”
During the 20th century, we saw the creation of the idea of the three-stage life, Scott said. This model works very well for people with a life expectancy of 70, but now that people are living to 80 or 90, that three-stage is starting to break down.
“We’ve already seen the corporates drop defined benefit schemes because they couldn’t afford it,” he noted. “And that of course doesn’t mean that individuals can afford it either. And the big question is, when do you stop work? And certainly, I think people in their 40s and 50s are likely to stop work in their early 70s.
“I think there’s two major challenges people are faced with right now,” Scott said. “One is, they tend to underestimate their life expectancy. They’re often basing it on their grandparents or their parents, but every generation is living 6 to 9 years longer, and that’s not a good guess.
“Of course, the other problem we’ve got right now is such low-interest rates,” he added.
How Do We Cope With These Changes?
The good news is, people are likely to be productive for a longer span of time in their lives, Scott noted, adding that if we discontinue physical labor, our earnings peak is extended.
The ability to stop physical labor is largely a benefit of improving technology, but we need to stay familiar with innovations to remain relevant in the workplace, as well.
“Over a 60-year career, you’re going to see a huge amount of technological change,” Scott said. “Looking at the next 25 years, if you look at the whole big data/artificial intelligence debate, a lot of those office jobs are going to be really threatened by the rise of technology.”
We need to push people to focus on not just the financial aspects of their retirement, but that they’ll have to start looking at their skills and knowledge and maintain those as well, he noted.
As our expectations regarding lifespan change, we’ll have to shift how we do things. And this goes beyond just thinking of financial assets. Scott believes we need to focus on three new classes of assets, what he called productivity assets, vitality assets and transformational assets.
“Productive assets are what make people productive at work,” he said.
These include skills, knowledge, our networks and our reputation. All will need to be maintained longer in life.
Vitality assets consist of two types: mental and physical fitness, and also maintaining family and friendships.
“(Every study) says family and friendships is what really matters,” he noted.
The really important new class of assets is what he calls transformational assets.
“This is your ability to deal with change,” Scott said. “Change is harder as you get older. But in a longer life, in this multi-stage life, we really believe you’ve got to invest in that change.”
Listen to this full interview with the author of 100-Year Life: Living and Working in an Age of Longevity, Andrew Scott, on the Newshour page here or on iTunes here. Subscribe to our weekly premium podcast by clicking here.