[SCMP Column] Realities for Retirement

June 20, 2016


On Saturday, two good friends walked excitedly out of hospital with a new son in their arms and 3-year-old Sacha at their side. Among the many thoughts flooding their minds about the future of their family, one was probably absent:  there is a 50% chance their kids will both live to be 105.

As I was thinking about the debate now being engaged in Hong Kong on how to build a retirement savings framework for the future, young Sacha and his baby brother came into my mind – and a realization that the retirement financing issues we are discussing have absolutely no relevance to the challenges they will face in the last 40 years of their 100-year lives. In short, we are focusing our energies on the wrong things.

I have to thank a fascinating new book “The 100-Year Life” by Lynda Gratton and Andrew Scott at the London School of Economics, for bringing these issues so clearly into perspective. Their conclusion? If we are to avoid future lives being “nasty, brutish and long”, we are going to need to manage a social and economic revolution.

The relentless logic of their book begins with simple, undisputed, but largely-ignored demographics: apart from Sacha probably living to the age of 105 (if he had been born in 1910, his chance of surviving to 105 would have been 1%), any 20-year-old today has a 50% chance of living to 100, and a 40-year-old to 95. Even creaky old me, at 65, is likely to live beyond 90.

These simple demographics put a devastating time-bomb under just about any pension scheme in place anywhere in the world today, and underscore why so many state pension schemes worldwide are unsustainable and close to bankruptcy. A fictitious Jimmy, aged 40 today, would need to save 17% of his income every month to be able to retire at the age of 65 with a retirement income of 50% of his present salary (most people polled worldwide seem to agree that 50% is the minimum they would like to cope on in retirement, assuming they already own their own home). And our fictitious Jimmy has only one response to this savings news: dream on! He sees no realistic possibility of saving so much on a regular basis, without the help of Mark 6. If he chooses to work on until he is 77, then his savings rate could fall to 8%. Even that would be a challenge.

Take a fictional Jane, who is now 18 and about to go to university, and her demographic arithmetic is even more stunning. To retire at 65, and support a 35-year retirement, she needs to save 25% of the income she will begin to earn after leaving university. To get this savings rate down to 11%, she would need to work to the age of 85.

To get this preposterous arithmetic back down into the realms of reality – and to make sure we avoid Hobbes’ “nasty brutish and long” life – an epidemic of frailty – Gratton and Scott predict a complete social revolution. This starts with an end to the three-stage life that humans have always taken for granted – stage 1, childhood and education; stage 2, adulthood, work and childbearing; and stage 3: retirement, old age and death. They predict a multi-stage life ahead for 18-year-old Jane which will start with a longer time in full time education, and then more educational way-stations along peoples’ lives. So old codgers like me should not be dreaming about retirement, but instead about the next couple of years being devoted to learning new skills that will equip me for the next working stage of my life. I should be focusing on re-creation, not recreation, they say.

As robots and artificial intelligence usurp so many jobs so we will need to think very carefully about the areas where humans will retain absolute or comparative advantage. Beyond education, they predict multiple careers, most of them not in large companies, but in “ecosystems” that surround big companies, or in consultancies that allow “portfolios” of work focused on multiple clients. The assets needed for this 100-year life will be fundamentally different: apart from the “productive assets” like tailored education and work skills we will need “vitality assets” like staying healthy, exercising and eating well, keeping life in balance; and “transformational assets” that equip us to cope with, and take advantage of, the many transformations that will mark 100-year lives.

At the heart of this transformation will be the idea of “juvenescence”. Apparently social scientists call it “neoteny” – the ability to retain youthful characteristics of adaptability and flexibility throughout adulthood. Gratton and Scott talk about it being called “galumphing”: “We galumph when we hop instead of walk; when we take the scenic route rather than the efficient one; when we are interested in means rather than ends.” To thrive in a 100-year life all of us whatever our age will need to act in a younger, more flexible way. This world will be more “age-agnostic”, with less age-isolationism. If you have seen Robert De Niro and Anne Hathaway in the film “The Intern”, you will know what I mean.

For many companies, these transformations could be a nightmare. The authors note that many companies like conformity, simplicity and systems that are predictable and easy to run and implement. This future business world will be complex and unpredictable: We can expect many large companies to resist change, they say. Challenges for governments will be huge too, because 100-year lives imply major tax reforms, big changes to benefit systems, and lots of legal system reforms.

Some of you will say it is mischievous and unrealistic to call for yet another Government study and consultancy, but surely instead of arm-wrestling dollar for measly dollar over whether or not we should fund a universal pension, we should be focusing on this bigger and more fundamental challenge. We shall all soon enough be living 100-year lives, and there will be bigger challenges to wrestle with than retirement at 65.
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