The age-old concept of a three-stage life – education, employment, and retirement – needs rethinking. To make the most of the opportunity requires a shift in mindset and a change in investment strategy
Ageing was much simpler in the olden days. For centuries – if not millennia – most people’s lives have been accomplished in three stages: learning, which leads to employment, then retirement.
But in 2022, largely thanks to the wonders of technology and improved healthcare, the traditional notion of old age is evolving. As a result, life is all the more thrilling. Now, the supposed retirement age could – and should – be embraced as an additional phase of life, one of newfound freedoms, whether hobbies, businesses or passions.
Retirement is no longer a period of winding down or dependence. On the contrary, the concept will soon expire, contends Andrew Scott, a world-leading expert on longevity and professor of economics at London Business School.
There’s no need for pipe and slippers in the 21st century. The latest Office for National Statistics (ONS) data shows the number of people in the UK aged 85 and over was a record 1.7 million in 2020. That amount is projected to almost double to 3.1 million by 2045.
Additionally, the ONS calculates that life expectancy at birth in 2020 was 87.3 years for males and 90.2 years for females. Consider, at the start of the 1980s these figures were 70.8 and 76.8 years, respectively.
Rising life expectancy and population age go hand in hand. And this trend is global: the world population’s median age in 1970 was 21.5 years, and almost 31 in 2020, according to the United Nations Population Division.
Taking actions for a more rewarding retirement
However, to make the most of the possibilities of old age, it’s critical to take action today for a more rewarding tomorrow, urges Scott.
“Now there is a greater risk you may outlive your wealth,” he says, referring to squirrelled-away savings and pension pots that have been the typical source of funds for retirees. “So you need to invest more in your future self. One of those key investments is finance, but health, relationships, and engagement – developing good health, skills and relationships all play important parts. Any financial plan, though, should be dictated around your life plan.”
In 2016, The 100-Year Life – a book authored by Scott and Lynda Gratton, a professor of management practice at London Business School – was published. And while it’s often said “age is just a number”, could it be that we have been using the wrong measurement all along?
“It was randomly decided that 65 is ‘old’,” continues Scott, “and the older I get – I’m in my 50s – the more I dislike that as a starting point. While more people live for longer, that doesn’t consider changes in how we age, either our health or our behaviour.”
The average Brit has never been so old but never had so long left to live
He believes how we define old age “requires a rethink because traditional age, measured chronologically, is confusing” and often misleading regarding life expectancy. “We need to focus on biological age rather than chronological age,” says Scott. “And we also need to consider prospective age more – that is, the number of years we have left to live. For instance, the average Brit has never been so old but never had so long left to live – this is how we have to adjust our thinking.”
Clearly, good health and good wealth are mutually reinforcing for a life lived as long and as fully as possible. But does this require both a shift in mindset and a change in investment strategy? For instance, Tony Müdd, divisional director for St. James’s Place development and technical consultancy, suggests pension schemes are a good idea, but that you can tailor contributions to match your earning potential. In your 50s, you are likely to be in a better financial position than in your 20s, so why not bump up your input?
Thinking beyond pensions
And while a pension will provide a decent chunk of income for many people in later life, it’s far from the only source. Müdd stresses the benefits of a diversified portfolio of tax-efficient investments, maybe in property or other assets.
He notes, though, that while a later life packed with adventure, excitement and new opportunities is the ultimate goal for most of us, the reality is that dream can be killed by poor health. Müdd worries people often take a “head-in-the-sand approach” to monitoring their health. He points out that a quarter of people in the UK over the age of 70 will require lengthy healthcare.
“It’s a subject that people don’t like to think about, but long-term care can be very expensive, costing hundreds of thousands of pounds,” he warns. “Lots of people in the UK are sleepwalking into a position where they will not get the level of care they think they should receive from the local authority, so will have to pay for it themselves. That could drain their children’s inheritance. You can take out insurance, but people tend not to do that. The only way, then, to deal with long-term care is effectively to save money.”
Moving swiftly away from the gloomy topic of impending death is Michael Clinton, the longtime president and publishing director of Hearst Magazines. His book, ROAR: Into the Second Half of Your Life was recently published, in September 2021. And two years shy of becoming a septuagenarian, he is accelerating, not pumping the brakes.
He counters the thinking that people have midlife crises but rather “awakenings”. Clinton explains: “At 50, you know a lot about yourself. Now is the time to tap into your awakened self and move forward. If you are 50 and healthy, you will have a pretty good shot of living to be 90. That will mean second and third careers, new relationships and lifestyles. Suddenly, people are saying: ‘I don’t want to retire; I want to rewire. I want to wind up, not wind down.’”
“Retirement is no longer seen as a binary outcome – namely, you don’t stop working when you retire now,” Scott says. “Retirement used to be like a cold shower, and now people want more of a warm bath. Supposed retirees often work part time with their existing employer or start up something themselves. Also, within two years of retiring, one in five people ‘un-retire’.”
He concludes by predicting the demise of retirement. “If you think about the 100-year life, there must be a movement away from a three-stage life – education, work, retirement – to a multistage life.” Scott adds: “Before long, we will reach the point where the concept of retirement itself – if you define it as the permanent cessation of work – will be retired.”
This article was first published in Raconteur’s Wealth & Asset Management report in May 2022