Retirement Is a Phase, Not a Single Date

People expect to work longer and flexibility will become the new model for retirement, finds Aegon’s third Retirement Readiness survey.

A collaboration by the Transamerica Center for Retirement Studies and Aegon, the survey finds only 32% of employees now expect to stop work completely at retirement age. Despite the improving economy, confidence in retirement—meaning the ability to stop work and lead a lifestyle they consider comfortable—remains weak. Yet while people are worried, they are not doing much to save or plan for retirement.

The need for people to save for retirement is substantial. Plan sponsors in the U.S. have seen great results from the use of automatic enrollment and other auto features, says Catherine Collinson, president of Transamerica Center for Retirement. Next, they should help their employees take advantage of all the tools and resources that are already available, she suggests. The survey results show that relatively few employees used a retirement calculator to estimate their retirement savings goal, she tells PLANADVISER.

The appetite for tools and resources offered by retirement plan providers is there, Collinson says, but some dots need to be connected. “Simply taking stock and communicating them to employees is a big step,” she says. “And helping workers assess their goals is a very important first step.”

Only one in six (18%) expects to be better off in retirement compared with current retirees. Particularly in Europe and North America, people fear that the sort of retirement their grandparents or parents had won’t be available to future generations. In the future, retirement will come to be defined very differently. In particular, it will require a larger role for paid employment as the notion of retirement becomes more flexible.

The notion of retirement as a single fixed point in time is gone, Aegon contends, and it is clear that employers and governments must change the way they structure and think about retirement. The traditional cliff edge retirement—where people stop working abruptly at a given date—is slowly giving way to retirement as a series of stages. Many now expect to have some kind of phased transition into retirement.

Retirement systems vary around the world, Collinson notes. “Every country has its own retirement system,” she says, “and requires personal savings to a greater or lesser degree.” Some of the systems show signs of strain, in part because of the demographic shift and in part because of the increase in life expectancy. There are simply more people over the age of 60 to 65, Collinson says.

“Today’s workers are helping to pay for today’s retirees,” Collinson points out. “If this shifts in future years and there are more retirees but fewer younger people, the numbers will not add up. Governments must ensure that their systems are sustainable for the long run.”

People will think much more elastically about retirement. Making the transition into retirement more flexible—a phased retirement—fits current trends of aging. Growing older is less about financial dependency and disability, and more about living a healthy, active and productive life. A flexible approach also makes economic sense as people live longer and have to maintain financial independence into old age.

A longer retirement requires more flexibility. Delaying retirement or combining it with paid employment can mean the difference between poverty and prosperity. Deferring retirement for two years can help to increase incomes by up to 20%.

Employees currently accept that they will enjoy a relatively long retirement, the study says. Typically, people expect to spend around one-quarter of their lives in retirement. The estimated time spent in retirement varies from country to country. In the Netherlands and the U.K., people expect to spend just one-fifth of their lives retired. But in Brazil and China, people expect to spend up to one-third of their lives in retirement. Faced with the prospect of so many years in retirement, it is inevitable that many people now believe that blurring the distinction between work and leisure will allow them to enjoy a more financially comfortable retirement.

People continue to hold positive aspirations for retirement, with many associating retirement with leisure (46%) and a sense of freedom (41%). But one-third (34%) of employees are pessimistic about having enough money to live on in retirement, and just 19% are very or extremely confident that they will be able to retire with a lifestyle they consider comfortable. This confidence is especially low in Europe, with the figure in France just 6% and in Poland 4%.

The Aegon Retirement Readiness Index is an attempt to capture retirement preparedness. The index improved over last year, but the overall index score remains just below six out of 10.

The Retirement Readiness survey examined 15 countries: Brazil, Canada, China, France, Germany, Hungary, India, Japan, the Netherlands, Poland, Spain, Sweden, Turkey, the United Kingdom and the United States, countries selected on the basis of their distinctive pension systems, as well as their varying demographic and aging trends.

The global research firm Cicero Consulting conducted the survey in January and February. Respondents were 16,000 employees and retirees who were interviewed in their native language using an online panel survey. The range of issues covered include attitudes toward retirement readiness, the role of the government and employers in providing retirement benefits, and the impact of the financial crisis on attitudes regarding investment risk and retirement planning.

Aegon is a global provider of pensions, insurance and asset management based in the Netherlands, in The Hague, with businesses in more than 25 countries in the Americas, Europe and Asia.

The Transamerica Center for Retirement Studies is a division of the Transamerica Institute, a nonprofit, private research and education foundation.

A link to the survey is here.