Economic Disruption Means the World Needs to Rethink Retirement

401k, rethinking retirement, Transamerica, Aegon, Social Security

Back to the drawing board.

Almost half of the world is apprehensive about the future state of retirement, new research suggests.

In a recent survey of 16,000 workers and retirees throughout the Americas, Europe, Asia and Australia, 49 percent of global respondents and 46 percent of Americans think future retirees will be worse off than those who are currently retired.

The findings were published in The New Social Contract: A Blueprint for Retirement in the 21st Century, a collaborative research report from Aegon Center for Longevity and Retirement (ACLR), Transamerica Center for Retirement Studies (TCRS) and Instituto de Longevidade Mongeral Aegon.

“Megatrends are disrupting long-standing societal constructs including how people live and work, plan for their future, and, ultimately, prepare for their retirement,” Catherine Collinson, CEO and president of Transamerica Institute and TCRS and executive director of ACLR, said in a statement.

When surveyed about which global trends are most concerning, respondents pointed to:

Other impactful trends mentioned on a lesser scale included changing demographics, new technologies and digital transformation, terrorism, cybersecurity issues, climate change, globalization, urbanization and international political instability.

To complicate matters, many countries’ “social contract” with regard to caring for retirees doesn’t hold up today. The structure that was once based on three pillars—governments, employers and individuals—is “crumbling,” according to the report.

“People are living longer than any time in history and birthrates are declining. This phenomenon known as ‘population aging’ is financially straining government-sponsored retirement benefits,” Collinson explained. “Simultaneously, employers have been replacing traditional defined benefit pension plans with employee-funded defined contribution retirement plans.”

“Today, individuals are expected to take on increasing risk and responsibility in self-funding a greater portion of their retirement income,” she said.

Yet many are doing little to prepare for life after employment. Data show “just 39 percent of workers globally are ‘habitual savers’ who always make sure they are saving for retirement.”

All of this equates to only a quarter of survey respondents who “believe that they are on course to achieve their expected retirement.”

The report calls for the integration of nine design features into a new and improved social contract:

  1. Sustainable social security benefits as a meaningful source of guaranteed retirement income.
  2. Universal access to retirement savings arrangements for employed workers, and alternative arrangements for the self-employed and people who are not in the workforce.
  3. Automatic savings and other applications of behavioral economics in retirement-related products and services that make it easier for people to save and invest.
  4. Guaranteed lifetime income solutions in addition to social security benefits. Education for individuals to strategically plan how to manage savings to avoid running out of money.
  5. Financial education and literacy as a part of the educational curriculum so that young people learn the basics of budgeting, investing and managing savings.
  6. Lifelong learning, longer working lives and flexible retirement to help people to stay economically active longer and transition into retirement on their own terms—with adequate financial protections if they are no longer able to work.
  7. Accessible and affordable healthcare to promote healthy aging. Governments must oversee healthcare systems, and employers should provide healthy work environments and consider workplace wellness programs.
  8. A positive view of aging that celebrates the value of older individuals and takes full advantage of the gift of longevity.
  9. An age-friendly world in which people can ‘age in place’ in their own homes, and live in vibrant communities designed to promote vitality, health, productivity and economic growth.

“A new social contract for retirement is needed at this time when megatrends are disrupting how people live, work and prepare for a secure retirement,” concludes Collinson. “Forging a new social contract brings about exciting opportunities to incorporate cutting-edge innovations that encourage financial security and healthy aging.”

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