The future of retirement must be reimagined as the 100-year life looms

Every society, including SA's, is increasingly likely to grow old, and living to 100 will become the norm. Financing longer lives is a complex challenge that governments, corporations and individuals need to start tackling now. Ultimately, financial advisers are going to need to play an essential role in helping individuals successfully finance longer lives.

Remarkably, every generation is living six to nine years longer than the previous generation — and staying healthier for longer, says Prof Andrew J Scott, a groundbreaking researcher and author on the effects of longevity, economics and technology on society. As professor of economics at the London Business School and a government adviser, Scott offers a unique perspective on longevity and an ageing society.

Financing a 100-year life is not the only consideration; individuals should live a meaningful, healthy, rich life, says Scott. “In SA you have to find ways to get your current young and middle-aged citizens to be the healthiest ever ‘future old’ — healthy, active and financially secure in old age.”

We tend to think an ageing society is not an issue in SA where almost 40% of the population is under the age of 19. But the picture is more nuanced. 

“In SA, the young for the first time ever can expect to become old — this is the first generation that will have a higher than 50% chance of getting old,” says Scott.

Shifting to a multi-stage life

Living longer means there are more productive hours available per life. Someone with a life expectancy of 70 years has around 124,800 productive hours available over their lifetime. The number of available productive hours increases by almost 100,000 hours, to 218,000, if you live to 100. 

What do we do with all these extra hours? We start by rethinking the three-stage model of life — getting an education, working for 40-plus years, then retiring for 20 or so years. We may add stages such as part-time work, career transitions, or taking a midlife break to travel the world, says Scott.

This new type of life will change our thinking about savings, relationships, health and vitality, education, skills and careers, even our purpose. And financial advisers will need to support individuals through these changing needs.

Most critical is the need to fund a longer life — either by working for longer or saving more.

Retirement implications

In the three-stage life, with a life expectancy of around 80 years, you could work until 65 years while saving a manageable portion of your income towards retirement.

If you live to 100 but only work until 65, the portion of your income you need to save to fund retirement is around 25% of your annual income — an unrealistic amount for most people. In this scenario, you would work for 44 years, but be in retirement for 35 years.

Supporting a 100-year life means focusing on both the tangible — savings, property and pension — and the intangible — productivity, vitality and transformation, says Scott. 

People will work into their 70s and 80s, possibly transitioning into new careers, flexible roles or gig work. Work before retirement will become more fluid as people enjoy leisure time throughout their lives.  

In turn, retirement solutions will have to adapt because simple accumulation and decumulation products will no longer serve clients.

“Our biggest challenge is: How do you avoid running out of health and wealth?” asks Scott.

One solution may be longevity insurance — in which health and wealth products converge to minimise certain risks. Individuals can insure against the risk of outliving their assets, health, skills, relationships and sense of purpose, says Scott, adding that this aligns with Discovery’s purpose of making people healthier and enhancing and protecting their lives.

Financial planning for the 100-year life

Financial advisers need to work with clients to plan for a healthy, meaningful life, and not purely focus on retirement savings.

“Trying to engage people by telling them they need to save more doesn’t work,” says Scott. “If you consider their future in terms of health, relationships and skills, it helps people think more concretely. Get a 20-year-old to think about themselves as 30, and a 30-year-old to see themselves at 40. This helps broaden the conversation.” 

Critically, institutions and individuals across the world need to solve the longevity challenge. The adviser’s role will be to help ensure longevity is a gift, not a curse, for their clients.

• This article is based on a presentation by Andrew Scott, delivered at the inaugural Discovery Retirement Summit, an exclusive line-up of global industry leaders who shared insights to help financial advisers better navigate the complexities and reimagine the future of retirement.

This article was paid for by Discovery.