Global Coalition on Aging  

Retirement in an Age of Longevity

By David Floyd

On Thursday evening, March 10, 2016, a panel of experts on aging, longevity and retirement gathered at the Museum of American Finance on Wall Street to discuss the economic impact longer lifespans will have on everything from Social Security to robotics to the non-profit sector. Three major themes emerged from the discussion, which went beyond the usual focus on healthcare: the sheer magnitude of the demographic shift, the surprising role technology will play in aging and the opportunities it presents, and the cultural changes we'll need to make to respond to how the world is being remade.

The event, titled "The Longevity Bonus: The Economic Impact of the Retirement Megatrend," was sponsored by Bank of America Merrill Lynch (BAML) and Investopedia. It began with a conspicuously fire-less fireside chat between BAML's Head of Global Wealth and Retirement Solutions Andy Sieg and Senator Bob Kerrey, now a managing director of Allen & Company, who represented Nebraska from 1989 to 2001 and was president of The New School (2001-11). The panel discussion that followed was moderated by Jonathan Clements, a former personal finance columnist at The Wall Street Journal. The participants were Joseph Coughlin, director of MIT's AgeLab; Michael Hodin, CEO of the Global Coalition on Aging; and Nora Super, chief of programs and services at the National Association of Area Agencies of Aging.

The Magnitude
According to a figure given by Andy Sieg, the "silver economy" is worth over $7 trillion. That represents an enormous opportunity to a range of sectors, but the challenges also loom large. Senator Kerrey discussed the issues facing Social Security, not least of which is political gridlock: Democrats, he said, don't want to cut entitlements in any way, while Republicans don't want to raise taxes. The result is that people need to save on their own, rather than depending so heavily on Social Security. Other challenges include the prevalence of Alzheimers disease: After age 80, the chance of suffering from it rises to 40%, according to Kerrey.

The fundamental demographic shifts implied by increased longevity should also give us pause. In Japan, 40% of the population will be over 65 in 50 years, according to the country's health ministry. The birth rate there has been below the replacement rate of around 2.1 (the amount needed to keep the population from falling), since the 1970s, and is now around 1.4, according to World Bank data. What does that look like on the ground? According to Hodin, adult diaper sales will surpass infant diaper sales in Japan within five years.

Other countries are already seeing below-replacement fertility rates, so that the world population – once expected to surge out of control until some catastrophe stopped it – is now projected to peak in the next century. In other words, longevity is not just an issue that affects boomers' retirement; it's a new global demographic reality. (Read more in Demographic Trends and the Implications for Investment.)

Technological Changes
As older Americans make up a larger and larger share of the population, new technologies will be needed to help care for them. And since technology is the mother of invention, a number of solutions are already in the works and on the market. The panelists spent very little time discussing the healthcare technologies that are normally associated with this demographic. Joseph Coughlin pointed out that the greatest "old man device" around has nothing to do with falling and not being able to get up: in his estimation, it's Apple Inc.'s iPad, which provides users with all the information they could want and the ability to expand the size of the text.

Coughlin also discussed the importance of robotics, given that many retirees are geographically separated from adult children who could act as caretakers. Autonomous cars will be crucial, given that the large majority of Americans over 50 live in suburban and rural areas without public transportation (see Regulators to Google: Robot, You Can Drive My Car).

Financial services will need to change as well. As Hodin pointed out, BAML has built its expertise in Alzheimer's and gerontology out of pure self-interest, given the huge share of disposable income people over 50 control (close to 70% in America, according to Nielsen).

Other companies are doing the math as well: Nestlé SA bought the dermatology business Galderma in 2014 to incorporate it into the company's newly formed Skin Health division. As Hodin put it, "We didn't use to live long enough for our skin to go bad." Senator Kerrey mentioned Under Armour Inc.'s forays into smart clothing, which could communicate health information to physicians. Coughlin referenced what's commonly called the Internet of Things, describing how your toilet could communicate health and nutrition information to your refrigerator (see 5 ‘Internet of Things’ Products for Your Home).

Cultural Changes
Perhaps most important, our political and workplace cultures will have to change dramatically to cope with the rise in longevity. Kerrey and Nora Super both discussed the challenges to Social Security. Kerrey pointed out that the most important changes would have to do with young people. Financial literacy has to start in middle and high school, or people will simply not save enough to make up for the shortfall in public benefits. Similarly, better health education will be needed to avoid ruinous healthcare spending. One quarter of high school students, he said, are too obese to join the military. (Read the details in Still Too Fat to Fight, a 2012 report of Mission: Readiness, an organization of senior retired military leaders.).

Super pointed out that Social Security was designed for an era when almost all women married and stayed at home while their husbands worked. Not only that, women tend to live several years longer on average than men.

Coughlin pointed out that the assumption of retirement at age 60 (or 65 or 67) is relatively new, and is no longer particularly viable. For a long time, the assumption in agricultural work was that "you retired when you died," as he delicately phrased it. Working later in life does not have to be an unadulterated burden, however. Jonathan Clements cited the boost that having an active social network provides to health, a plus that is about on par with not smoking (a 2010 study in PloS Medicine came to roughly this conclusion).

Nor do older – and generally less productive – workers need to be a burden to employers or the labor force. As Coughlin noted, there's not a long line of younger workers waiting for older generations to get out of the way, especially in certain industries such as trucking and engineering.

What's coming is a shift in how we regard the lifecycle. Coughlin notes that even if retirees work longer, they are also likely to be retired for longer – perhaps 20 to 30 years on average. Super called this period a "second act," when many retirees will be able to give back to the community by lending their experience to the non-profit sector and corporate mentoring. For all the necessary emphasis on saving money, Coughlin added, people will also need to figure out how to spend it when that time comes.

The Bottom Line
Around the world, lifespans are rising and birthrates are falling. Countries like Japan provide one example of how these trends could play out in the U.S. down the line. The trend towards longevity will both necessitate and spur major changes in culture and technology. These changes will not be limited to fields like healthcare, but touch robotics, finance, the workplace and public policy.

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