Securing financial resilience for the 100-year life

Today, we live ten years longer than our parent’s generation and twenty years more than our grandparent’s. How societies and individuals prepare for retirement was not designed with this demographic reality in mind. For many people, their savings will expire long before they do. On average, individuals will outlive their money by between eight and 20 years. And women are at the sharp end of this scale, with longer lives and pension savings around 40% lower than men’s. One key objective for redesigning retirement is securing financial resilience for this new longevity – making long life worth living.

Faced with outliving their money by such a significant margin, employees desperately need help with financial wellbeing. Employees’ number one financial worry is saving enough for retirement, Mercer’s 2020 Global Talent Trend Study finds. Regardless of age group, 68% of employees say they want financial wellness advice and assessments, and 61% say it’s important to know if they are on track to have sufficient funds in retirement. Yet organizations have been slow to catch on: only 23% currently provide financial education for employees.

If securing financial wellness was important before the pandemic, it’s a burning platform today. The economic impact of Covid-19 has knocked retirement planning sideways as investment markets recoil, interest rates remain at rock bottom and corporations pull back on the dividend payments upon which pensions rely. As we saw during the 2008 financial crisis, one in ten organizations have paused matching pension contributions – and we know from that crisis that individuals’ finances never fully recovered subsequently. Extra freedoms have been allowed in some countries to draw from pension pots early, but this is like robbing Peter to pay Paul.

Hence, it is likely that even more people will need to keep working. Pre-Covid-19, 72% of baby boomers say they intended to work past retirement age. The pressure on companies will mount. Seven in ten executives are worried about the cost of financial overheads – like health and retirement contributions – for employees who stay on. Without action to strengthen financial wellness, employees will be left chasing the rainbow of retirement – and organizations risk paying for longevity. For all uncertainties of the coronavirus’ legacy, one thing is sure: financial resilience is an imperative for all generations, not just those nearing retirement. The impact of the virus on longevity however, is not yet known, but we do know that it affects people very differently.

Our health and our career are part of financial wellness

Companies’ attitudes towards financial resilience will need to mirror the mind-set shift – away from treating illnesses towards preventative actions – we have seen in health and wellbeing. Safeguarding financial wellness over the course of a longer life will require taking an all-encompassing view of a person. This means their tangible assets (including savings and assets such as property), but also less tangible assets such as their health, their skills and career readiness to work longer, to run a business alongside a job, or even maintain three or four flexible jobs.

Building a later-life strategy will become the norm, personalized goals against which companies can help individuals assess whether they are on track and how to close the gap if not. Indeed, 71% of employees say they want a midlife check-up for health, wealth and career.

In workshops Mercer is running with the World Economic Forum, we are using design thinking to develop exactly this type of holistic long-term life plan. Taking into account the personal circumstances of different worker groups – including their life expectancy, aspirations, health and skills status, and their finances – we are exploring ways to: design new ways to work and earn; invest in skills to raise people’s potential; increase access to health support; and unlock creative additional sources of income. There will be innovations in the ways we redesign work to turn life plans into reality, but some early ideas we see include:

• Designing flexible work arrangements. New employment models (such as phased retirement, re-employment and portfolio careers, and multi-employer consortium talent pools) will be essential to redesigning work for the 100-year life. The Covid-19 crisis has even spurred innovation through Temporary Talent Sharing (where companies temporarily transfer underutilized workers to the sectors seeing the highest demand). We are also seeing experiments with different work patterns for older workers, including allowing experienced workers to undertake project-based contracts with added social protection (‘contractor+’ working). This employment model, which includes employee benefits like basic pension contributions, life and health insurance, and access to training via an education budget, none of which are usually provided in a standard contractor deal, makes for a novel approach to an engaged and rewarding later life.
• Increasing access to remote healthcare. One positive outcome of the pandemic has been the growing prevalence of telehealth. With social distancing measures in place, access to digital doctors and/or virtual specialists is becoming commonplace. Digital health tools broaden access to vital health interventions, particularly among low-wage workers. Data show only 43% of organizations deploy remote healthcare or telemedicine today, but the good news is that 68% of employers are likely to invest in digital health in the next five years. 
  
• Thinking creatively about wealth management. Let’s be honest: ‘tweaking’ pensions is wholly insufficient to secure people’s financial wellness based on today’s financial products and demographic realities. Only 45% of companies make personal financial management tools (like wealth calculators) available today, although 41% plan to invest in them this year. Offering employees financial education, access to robo-advisory services, and a personal financial health check every five years after age 40 are some ideas that can help. But we must go significantly further and re-imagine retirement altogether. Can we support individuals to think inter-generationally and pool assets (funds or property) for higher return potential, for instance? What income-smoothing products might the self-employed require to manage income volatility? What about permanent life insurance or longer-term mortgages? How can we make phased access to pension assets easier? Governments and companies will have to work together to make outdated financial products and solutions more age-and longevity-appropriate.
  

Reaching the end of the rainbow

Redesigning retirement means redesigning work too. In our experience, this will mean a deeper blurring of the lines between employment and self-employment, between retirement and semi-retirement. People will need to navigate it well. Life is no longer too short not to put a few things right. Let’s ensure that from a financial resilience perspective, we take the bold steps needed now to fix the retirement system.