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World Future Society Presentation Sunday July 19, 2009 11:00am – 12:00pm

Future Patterns of Work and Retirement: The Evolving Third Age Anna Rappaport, FSA, MAAA Terry Kozlowski. World Future Society Presentation Sunday July 19, 2009 11:00am – 12:00pm.

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World Future Society Presentation Sunday July 19, 2009 11:00am – 12:00pm

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  1. Future Patterns of Work and Retirement: The Evolving Third AgeAnna Rappaport, FSA, MAAATerry Kozlowski World Future Society Presentation Sunday July 19, 2009 11:00am – 12:00pm

  2. The Quiz – please meet your colleagues and brainstorm answers in groups or two or three before presentation starts • Longer life spans – Each decade, life spans at age 65 are expected to increase about ___ years. • About ___ out of ten Americans over age 55 provide care to family members. • Since Social Security started in the 1930s, the age for full retirement benefits increased from 65 to ___ . From 1940 to 2000, the life expectancy of men aged 65 increased from 11.9 to ___ years. • About ____% of Americans stop working in steps before finally exiting the labor force. • About ___ out of ten Americans end up retiring before they planned to. • In 2000, mean at age 65 were expected to live an average of 15.9 years and women an average of ___ years. World Future Society July 2009 – Future Patterns of Work and Retirement

  3. The Quiz Answers • Longer life spans – Each decade, life spans at age 65 are expected to increase about 1 years. • About 4 out of ten Americans over age 55 provide care to family members. • Since Social Security started in the 1930s, the age for full retirement benefits increased from 65 to 67. From 1940 to 2000, the life expectancy of men aged 65 increased from 11.9 to 15.9 years. • About 50% of Americans stop working in steps before finally exiting the labor force. • About 4 out of ten Americans end up retiring before they planned to. • In 2000, men at age 65 were expected to live an average of 15.9 years and women an average of 19.0 years. World Future Society July 2009 – Future Patterns of Work and Retirement

  4. Who Are We and Who Are You? Anna Rappaport Terry Kozlowski World Future Society – Future Patterns of Work and Retirement: The Evolving Third Age - July 2009

  5. What We’ll Explore Today  Establish Common Context Explore Three Life Stages Discuss Implications World Future Society – Future Patterns of Work and Retirement: The Evolving Third Age - July 2009

  6. Trends and RealitiesDemographics—aging populations Country Current Projected 2030 Canada3.44 1.72 China5.54 2.26 India7.01 4.19 Italy2.36 1.33 Japan2.44 1.36 UK2.64 1.59 US3.33 1.90 Changing ratio of active workers to retirees Source: p. 61-63 Global Aging Capital Market Implications, Goldman Sachs, 2001 Reasons & Implications • Declining fertility rates: fewer workers • Aging population: older workers • Increased life expectancies: longer retirement = retirees = working age adults World Future Society – Future Patterns of Work and Retirement: The Evolving Third Age - July 2009

  7. World Population Aging - Producing Unprecedented Changes in All Societies Unprecedented & Irreversible – By 2050, number of older persons (60+) will exceed young (under 15) for the first time in history Pervasive and Profound – Includes social, economic and political impacts Enduring – By 2050, 21% of people in world (2 billion) will be 60+. Two to five times as many women as men at oldest ages. Fastest growing age group is oldest-old (80+). One fifth of all older persons by 2050 Differences in more developed and less developed regions in number and proportion and time to adjust to consequences of population aging Source:United Nations World Population Ageing 1950-2050 Executive Summary World Future Society – Future Patterns of Work and Retirement: The Evolving Third Age - July 2009

  8. Big Issues: Industrialized World Role of governmental programs, employers, and individuals How risks are shared and managed How much choice and individual responsibility Too much choice = bad result* Mandates (i.e. everyone must save 9% as in Australia) vs. voluntary action (401(k) plans and IRAs in the United States) Gradual retirement/facilitating work as part of retirement Methods of payout of retirement funds Life income with survivor benefits as in Social Security Lump sums, as in most 401(k) plans Retirement ages and adapting to aging society * Good resource: Nudge by Thaler and Sonstein World Future Society – Future Patterns of Work and Retirement: The Evolving Third Age - July 2009

  9. Three Life Stages Working + Living (WORKING) Living + Working in Old and New Arrangements + Drawing upon income source(s) (THE THIRD AGE) Living + Drawing upon income source(s) (RETIREMENT) (NOT ABLE TO WORK OR CHOOSE NOT TO WORK) The Last Stage Likely to Include Periods When People Are Active, Limited And Severely Limited Note: Stages are fluid and not rigid World Future Society – Future Patterns of Work and Retirement: The Evolving Third Age - July 2009

  10. Regarding Retirement: Some Key Stakeholders 1. Individuals 2. Employers 3. Policymakers Social Security Policy drivers for work options, pensions, taxes 4. Society 5. Financial service industry + Advocacy groups + Organized labor + . . . Interests overlap and sometimes are in conflict World Future Society – Future Patterns of Work and Retirement: The Evolving Third Age - July 2009

  11. Different Perspectives on Retirement Individual point of view – frame of mind, phase of life, economic status, and varies a lot by person Employer point of view – retiree is an individual with prior long service who may be getting a benefit (or have received one) Public policy point of view – individual who should get some form of support to replace or supplement earnings Societal point of view – defined by types of activities, sources of support and maybe age Financial services industry point of view – opportunity to support accumulation and spend-down periods World Future Society – Future Patterns of Work and Retirement: The Evolving Third Age - July 2009

  12. Ages of Transitions Between Life Stages Driven by . . . Individual and family choices, behaviors, actions, Large societal impacts and drivers Risks and circumstances beyond individual’s control Individual’s capability, driven primarily by health condition: Active Somewhat limited Very limited Family caregiving requirements Change in family status (death of spouse, divorce, marriage) World Future Society – Future Patterns of Work and Retirement: The Evolving Third Age - July 2009

  13. Working – Retirement – Third Age Establish Common Context  Explore Three Life Stages Discuss Implications World Future Society – Future Patterns of Work and Retirement: The Evolving Third Age - July 2009

  14. Working Explore Three Life Stages World Future Society – Future Patterns of Work and Retirement: The Evolving Third Age - July 2009

  15. Mature Worker Realities Baby boomer – very large group in mid-life 78 million baby boomers in USA By 2010, 1 out of 3 workers will be age 50+ 55+ labor force will grow by nearly 50% from 2002 to 2012 Economic crisis has largest effect on group nearing retirement Offer lot of experience/often wisdom Many companies will face brain drain – key roles Obstacles to work options Age discrimination Higher health care costs Some jobs require physical effort/difficult More disability in this age group World Future Society – Future Patterns of Work and Retirement: The Evolving Third Age - July 2009

  16. How Patterns of Work and Retirement are Evolving – Current Workplace Factors 6 million jobs gone, 9.4% unemployment rate in USA Older workers losing jobs faster than any other age group (3.2 to 6.2% in last year) 1.8 million 55 and older looking for work in March 2009 (Source: Bureau of Labor Statistics) Job search time typically 25 weeks or more for 55+ compared to 18.7 weeks for younger and salary often lower (source: AARP) World Future Society – Future Patterns of Work and Retirement: The Evolving Third Age - July 2009

  17. How Patterns of Work and Retirement are Evolving – Current Workplace Factors All ages currently working may have been affected by hiring freezes, salary freezes, furloughs, pay cuts, reduced overtime, full to part time reductions 27% of 45-54 age group looking for new employment because of uncertainty about current employment per AARP survey in May 2009 22% of 45-54 age group felt it was at least “somewhat likely” that their job would be eliminated in the next year per AARP survey in May 2009 Age group ___ to ___ has the highest rate of entrepreneurial activity (experience + savings) Source: Kauffman Foundation World Future Society – Future Patterns of Work and Retirement: The Evolving Third Age - July 2009

  18. Phased retirement already exists informally In the past 12 months, have you worked for pay . . . ? (Retirees, n=400) Full time throughout the year12% Part timethroughout the year10% Not worked for pay at all70% Full or part time for only part of the year 8% Source: Society of Actuaries, 2007 Risks and Process of Retirement Survey 17 World Future Society – Future Patterns of Work and Retirement: The Evolving Third Age - July 2009

  19. And phased retirement will likely increase in the future Gradually reduce the number of hours you worked before stopping completely Continue to work for pay part time or periodically Stop working all at once Continue to work for pay full time Which statement comes closest to describing how you retired/plan to retire from your primary occupation? (Among those providing retirement age from primary occupation) Source: Society of Actuaries, 2007 Risks and Process of Retirement Survey 18 World Future Society – Future Patterns of Work and Retirement: The Evolving Third Age - July 2009

  20. Few retire at the same time as their spouse Who retired/will retire first? You, your spouse, or will you and your spouse retire together? (Among married retirees and pre-retirees providing retirement age from primary occupation) Source: Society of Actuaries, 2007 Risks and Process of Retirement Survey 19 World Future Society – Future Patterns of Work and Retirement: The Evolving Third Age - July 2009

  21. Encore Careers – combining income and personal meaning with social impact “Potentials” = interested, see retirement as “second chapter of meaningful work” “Traditionals” = not interested, see retirement as rest and recreation Differences: Health status, Age, Planful Competence, Social Isolation “Planful competence” Job level Education level Pension, healthcare, economic resources Recommendation: Need to widen pool of available encore jobs with more control over time and timing of work, policy implications Source: http://civicventures.org/surveys.cfm World Future Society – Future Patterns of Work and Retirement: The Evolving Third Age - July 2009

  22. Flexible or Alternative Work Options Flexibility through schedule, duties, place of work and relationship with employer Schedule: Compressed work week, Part time Work, Flex time Place of work: Telecommuting Relationship with Employer: Consulting, Temporary Duties: find match between individual desires and organizational needs Structure new relationship: Job share, Entrepreneurship World Future Society – Future Patterns of Work and Retirement: The Evolving Third Age - July 2009

  23. Retirement Explore Three Life Stages World Future Society – Future Patterns of Work and Retirement: The Evolving Third Age - July 2009

  24. Evolving Responsibilities for Retirement Social Security key to economic security Lot of reliance on individual decisions Employer role in security Private large companies – big Small companies – limited Public sector – nearly everyone covered (mostly DB) Financial crisis Some retired back to work 27% of 55-64 age group postponed plans to retire per AARP survey in May 2009 Some people raiding retirement savings to cover immediate needs 23 World Future Society – Future Patterns of Work and Retirement: The Evolving Third Age - July 2009

  25. Retirement Trends: Defined Benefit to Defined Contribution Evolution Workers with retirement coverage, by type of plan: 1983 to 2007 • Source: Center for Retirement Research, An Update on 401(k) plans: Insights from the 2007 SCF, March 2009 • Notes: • 55% of private sector full-time full-year wage and salaried employees have pension coverage • DC plans offer a lot of employee choice • DB plans widely used in public sector and for multi-employer plans (union – management sponsored) 24 World Future Society – Future Patterns of Work and Retirement: The Evolving Third Age - July 2009

  26. Not Only What People Know . . . But What They Do US savings rates are low People save much more when they have access to employer plan Many gaps in knowledge about retirement Few think long term Assets vs. expectations: out of step Problems with math literacy, investment knowledge Little focus on systematic risk management Little understanding of long term risks 25 World Future Society – Future Patterns of Work and Retirement: The Evolving Third Age - July 2009

  27. Individuals’ Retirement Impacted by Decisions on How and When Benefits are Paid People say they want income but choose lump sums Distribution of benefits: lump sums vs. income DB: lifetime income common DC: lump sums usual in US but growing concern as these plans are primary Big policy issues: New defaults for DC plans How to prevent leakage: how much early access should be allowed and when? 26 World Future Society – Future Patterns of Work and Retirement: The Evolving Third Age - July 2009

  28. Retirement Factors in the Economic Crisis Many people need to work longer, but hard to do so – 4 out of 10 people retire earlier than planned Defined Contribution: Little change in participation Creates challenges for more affluent near retirees and already retired Reduced 401(k) balances – average loss of 25%+ from 1/1/2008 to 1/20/2009 – accounts of $200,000+ and 56-65 year olds with 20+ years of service Shift to DC plans compounds issues for individuals Defined Benefit: Major challenges for employers 27 World Future Society – Future Patterns of Work and Retirement: The Evolving Third Age - July 2009

  29. Policy Makers Facing Controversy about 401(k) Plans Huge growth in these plans Heavier reliance on default options: Growth of auto-enrollment, life cycle funds in DC Advocates Big success/contribution to retirement security % of participants taking hardship withdrawals under 2% Voices of Critics Too many people have been left out of the system Too much risk and exposure to market swings Lump sums at retirement and leakage Critical of investment options, expense disclosures Tax benefits go largely to more affluent 28 World Future Society – Future Patterns of Work and Retirement: The Evolving Third Age - July 2009

  30. Summary: Retirement Successes and Failures Successes People who can choose to retire Many retirees doing well – many with DB income Social Security benefits 401(k) plans Account balances Auto-enrollment and new defaults Large plans well funded before the financial crisis Public plans Failures Inadequate knowledge, motivation to deal with decisions, savings Many people with no employer pension – small ERs, part-time, job changers, etc. Inadequate savings 401(k) plans Account balances Using money too early Hard to find work Freezing of DB plans Too many lump sums 29 World Future Society – Future Patterns of Work and Retirement: The Evolving Third Age - July 2009

  31. Third Age Explore Three Life Stages World Future Society – Future Patterns of Work and Retirement: The Evolving Third Age - July 2009

  32. Third Age and/or Middle Period Factors Redefinition of retirement Many possible paths and different transitions Limit on how long individual can work? Few will work after age 75 Focus on productive aging Range of options for activities Community engagement (civic ventures) Couple issues Timing of retirement Changes after death of a spouse Physical abilities change World Future Society – Future Patterns of Work and Retirement: The Evolving Third Age - July 2009

  33. What older Americans do with their time varies by age... Work Formal Volunteering Informal Volunteering Caregiving Percent of Adults Age 55+ in 2002 Source: Butrica, Barbara, How Do Older Americans Spend Their Time, Urban Institute 32 World Future Society – Future Patterns of Work and Retirement: The Evolving Third Age - July 2009

  34. …and health status Work Formal Volunteering Informal Volunteering Caregiving Percent of Adults Age 55+ in 2002 Source: Butrica, Barbara, How Do Older Americans Spend Their Time, Urban Institute 33 World Future Society – Future Patterns of Work and Retirement: The Evolving Third Age - July 2009

  35. Who works past age 65? Female Male Not Married Married Health Poor Health Good Health Excellent High Wealth Medium Wealth Low Wealth Source: Butrica, Barbara, How Do Older Americans Spend Their Time, Urban Institute 34 World Future Society – Future Patterns of Work and Retirement: The Evolving Third Age - July 2009

  36. Although the nature of work varies significantly by wealth… Source: Butrica, Barbara, How Do Older Americans Spend Their Time, Urban Institute 35 World Future Society – Future Patterns of Work and Retirement: The Evolving Third Age - July 2009

  37. …satisfaction with work does not Source: Butrica, Barbara, How Do Older Americans Spend Their Time, Urban Institute 36 World Future Society – Future Patterns of Work and Retirement: The Evolving Third Age - July 2009

  38. However, retirement satisfaction varies by the type of engagement Work and Volunteering Formal Volunteering Only Formal and Informal Volunteering Caregiving and Volunteering Caregiving Only Multiple Caregiving Tasks Retirees Age 55+ in 2002 Percentage Point Change in Satisfaction Source: Butrica, Barbara, How Do Older Americans Spend Their Time, Urban Institute 37 World Future Society – Future Patterns of Work and Retirement: The Evolving Third Age - July 2009

  39. Final Thoughts Establish Common Context Explore Three Life Stages  Discuss Implications World Future Society – Future Patterns of Work and Retirement: The Evolving Third Age - July 2009

  40. Don’t Forget Multiple Stakeholders 1. Individuals 2. Employers 3. Policymakers Social Security Policy drivers for work options, pensions, taxes 4. Society 5. Financial service industry Interests overlap and sometimes are in conflict World Future Society – Future Patterns of Work and Retirement: The Evolving Third Age - July 2009

  41. Key Question for Individuals: Will longer life mean longer work or longer retirement? People expect to retire later, but so far – few do About 50% work in retirement or have bridge jobs Virtually no formal phased retirement (private sector) Barriers to pension payment with part time work 40% of people retire before they planned to Loss of job and poor health – major factors 70% of people say they want to work some in retirement Health insurance major challenge prior to Medicare eligibility 40 World Future Society – Future Patterns of Work and Retirement: The Evolving Third Age - July 2009

  42. Key Questions for Employers: Their Role in Retirement Security Should employer offer benefits, facilitate them, or opt out? Should employer be primary source of security? Offer benefits and pay for them Offer programs for individual saving Provide plans that limit lump sums – can mandate income for all of part of the benefit Serve as purchasing agent Offer access to pools Create expectations and provide information Advise and educate 41 World Future Society – Future Patterns of Work and Retirement: The Evolving Third Age - July 2009

  43. Making Retirement Work: Concerns of Employers and Employees Employers Helping employees realize the benefit of the funds they have accumulated Securing retirement for employees Managing fiduciary liability Winning loyalty and appreciation from employees Supporting talent management policy Keeping administration simple and cost effective Employees Housing and asset losses Timing of retirement Dealing with confusion Managing money in retirement Finding good advice Being able to deal with emergencies Leaving money to heirs Making money last Not losing money 42 World Future Society – Future Patterns of Work and Retirement: The Evolving Third Age - July 2009

  44. How Things Might Evolve – Four Possible Societal Scenarios with Implications I – Continue Present Trends II – Increase Retirement Ages III – End of Retirement IV – Move to New Patterns of Retirement Source: See Future Patterns of Work and Retirement -- The Evolving Third Age in your copy of Innovation and Creativity in a Complex World World Future Society – Future Patterns of Work and Retirement: The Evolving Third Age - July 2009

  45. I – Continue Present Trends Role of retirement systems in society is unchanged Most people leave full-time labor force at 60-67 About 50% work on some basis after they have left full-time work Big difference in pension benefits and assets by person Those who had long term jobs often have traditional pensions Older women alone least well off Big variation in experiences of those who try to get work World Future Society – Future Patterns of Work and Retirement: The Evolving Third Age - July 2009

  46. II - Increase Retirement Ages Role of retirement systems in society is unchanged Major increase in retirement ages No significant change in role of the family Pension implications Enable phased retirement Enable age 70 normal retirement ages Total resources needed decline – shorter retirement period Increases labor supply at older ages Increases need for work options Increases need for disability benefits World Future Society – Future Patterns of Work and Retirement: The Evolving Third Age - July 2009

  47. III - End of retirement Retirement systems and pensions disappear Major increase in labor supply at older ages Major increase in role of the family Increases need for work options Increases need for disability benefits Increases need for social safety net Greatly increases number of people in poverty/near poverty Author’s opinion: very undesirable result World Future Society – Future Patterns of Work and Retirement: The Evolving Third Age - July 2009

  48. IV - Move to new patterns of retirement Many similarities to II --- Increase in Retirement Ages Retirement is much more of a process Work options are critical Period of work at reduced level is normal – Third Age Increase in age of total withdrawal from labor force Increases labor supply at older ages Traditional final average pay plans are not a good fit Need methods to use retirement resources gradually while working Author’s preferred scenario World Future Society – Future Patterns of Work and Retirement: The Evolving Third Age - July 2009

  49. What We’ve Explored Today  Establish Common Context  Explore Three Life Stages  Discuss Implications World Future Society – Future Patterns of Work and Retirement: The Evolving Third Age - July 2009

  50. Future Patterns of Work and Retirement: The Evolving Third Age Terry Kozlowski- call 800.401.0607 http://achievementorgroup.comAnna Rappaporthttp://annarappaport.com Contact Presenters for Questions and Continued Conversation World Future Society – Future Patterns of Work and Retirement: The Evolving Third Age - July 2009

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