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The secret to a secure retirement is not retiring at all

Reuters/Lucy Nicholson
retirement reinvigorated
By Allison Schrager
Published Last updated This article is more than 2 years old.

Retirement is due for an overhaul.

A new white paper from Aegon, a Dutch insurer and asset manager, points out we now spend more years in retirement than in childhood. Not working for a third of your life is expensive, and unrealistic for most people. It’s no wonder many soon-to-be retirees are overwhelmed by the financial burden. Our current retirement expectations were designed for a different era, when people didn’t live as long and, if they were lucky, someone else paid them a pension.

The solution to a secure, fruitful, worry-free retirement is simple: work longer. Because the market is volatile and no one knows how long they will live, living off of investment income can be stressful. Income from work, however, provides predictable income and make savings go farther. But before we encourage everyone to longer work, even blue collar workers, we must convince employers to hire older workers, and some of them won’t.

Retirement is aging

The current conception of retirement evolved from the latter industrial revolution when governments started to offer pension benefits in the 19th century. Before, people worked until they died or were too weak to keep working. If they did retire, they relied on their families. The modern idea of retiring to enjoy healthy years after employment was created to fit an industrial work force, and the original employer-provided pensions became popular in the first half of 20th century in part because they were a means for employers to usher out older workers.

Employers valued a long tenure from workers and  got it by keeping them tied to a job in their prime years by offering the security of a pension, then used the pension’s benefit formulas to phase workers out as they aged and became less productive in physically grueling jobs. The benefit rules meant employers could decide when their workers retired.  But as traditional pensions went away, so did the employers’ control.

This leaves today’s employers in a pickle. While older employees have lots of experience and wisdom, they tend to cost more because they have accumulated years of salary increases. A culture that fetishizes youth means employers may assume older workers are more rigid, less creative and unable to quickly learn new technology. Many employers still want to retire their older workers, but they no longer have the same financial leverage they had with pensions.

The situation creates new vulnerability for soon-to-be retirees who may be laid off or pushed into an early retirement. A joint report from ProPublica and the Urban Institute estimates 56% of Americans over age 50 will experience some form of involuntary job loss. When older workers lose their job they face more months of unemployment and often take jobs that pay significantly less money.

The risk of job loss may pose an even bigger risk that whatever happens to the stock market. Adding to their anxiety, workers today who rely on 401(K)s for retirement savings also must work longer because, unlike traditional pensioners, their costs of retirement are transparent and borne by individuals.

While people need to work longer, they need institutions that make it possible. Age discrimination is illegal in America, but employers finds ways around it.

We need to reboot retirement—again

Rebooting retirement requires a rethink of work and education.  Lynda Gratton and Andrew Scott, professors of management and economic, teamed up to write, 100 Year Life, a book that offers ideas on how to keep older workers vital and in demand well into old age. They suggest never retiring (though they are open to work sabbaticals for all ages), constant re-education, and a new mind set around work. This may only sound realistic for white-collar workers, but even blue-collar workers can re-train and transition into less physically demanding part-time jobs in the service sector. Many of them have no choice.

We must stop thinking of retirement as a binary state, where either you work full time or not at all. Instead we can think of work as something slowly, perhaps never, phased out. Workers well into their 50s and 60s are under tremendous financial pressure to both pay their current expenses and make up for years of under-saving for retirement. Instead, if we accept the concept of part-time work for well into our 70s, it means less financial stress when we’re younger. Part-time work is also more appealing for employers because they can pay older workers less. If part-time salaried work is not an option, gig or contract work offers another possibility, because it offers the flexibility many new retirees and employers crave.

Evidence shows staying in the job can even prolong your life. A survey from Flexwork finds 70% of near-retirees say they need to keep working after they retire, but 60% of them say they also want to work. Work offers retirees socialization and a sense of purpose.

In some ways it is a return to a pre-industrial version of work, where no one every completely retires. But instead of toiling until the end, the knowledge tech economy offers ways to remain vital and valuable, well beyond 65.

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