What the Reinvention of Retirement Means for Millennials
As Americans live longer and healthier, financial planning for retirement becomes planning for longevity—and funding evolving opportunities.
Today, we're not only living longer, but also healthier, able to remain active well past the traditional retirement boundary of 65. That's a good thing. For many Millennials and younger generations who may reach their 90s (or beyond), fatter student loan bills and slimmer employer benefits mean they'll need to work longer, at least part-time.
"Our number one retirement plan is to keep working," says Arielle Burstein, senior associate at the Milken Institute's Center for the Future of Aging—and a Millennial.
This isn't a grim reality, though. It's a whole new concept of retirement presenting oodles of opportunity. "Retirement" is being reinvented, changing from stashing away an end-of-life contingency fund to planning for longevity, with varied, changing needs and opportunities.
Workers past 60 may cut back on hours or move to less-stressful, though also lower-paying, jobs; technology could continue to enable more flexible work arrangements to accommodate them. It's pivoting, not closing up shop. But financial strategies will have to account for changed paychecks and bills. At a certain point, it may be time to leave the workforce completely. And the medical miracles that enable us to live longer will also cost more as the years go on.
The reinvention of retirement means building flexible financial capabilities that can adapt as your needs and ambitions change from your 20s to your 90s (or 100s). "Why would you retire at 65?" says Steve Dorval, president of personal financial services at John Hancock. "If life expectancy becomes 95, that radically changes your approach to retirement. You want to be engaged in the future in a different way, around specific retirement goals, not a predetermined number in your bank account."
The Reality After The Retirement Bubble
In the U.S., the convention of retiring at 65 originated in 1936, when the government created Social Security. It was a shrewd financial strategy, since most Americans then weren't expected to live long enough to cash in. But growing lifespans, together with generous private pensions or retirement plans, allowed many Americans a decades-long holiday of retirement.
Today, Social Security is strained by baby boomers retiring (at the rate of about 10,000 per day); and companies aren't offering the rich retirement, or health, benefits they used to. Half of Millennials lack access to a traditional employer-sponsored retirement plan—a figure that may grow as the gig economy does.
Average wages have scarcely gone up in the past decade, but the cost of getting a good job has. Forty percent of Millennial workers had a bachelor's degree or higher in 2016, vs. 32 percent of GenXers and 26 percent of Boomers at the same age. Tuitions are growing far faster than inflation or the growth of salaries.
Despite their education, Millennials are earning less than Xers and Boomers did at the same age, according to the Center for Retirement Research. The well-heeled and well-chronicled Silicon Valley hipster is actually an anomaly for this generation.
Automation and artificial intelligence will keep nixing lower-skilled, repetitive jobs, such as data processing and physical labor. We may not mourn the loss of drudge work, but these changes not only require more people to get advanced degrees; they require them to continually learn as technology eliminates old jobs and creates new ones.
The hardest-hit Millennials are spending up to 45 percent of their income on student loan payments. Debt ripples through young people's lives. Meager bank accounts are one of the reasons they're marrying later and less often, according to the Center for Retirement Research. Meanwhile, single people, with bigger bills, are less likely to buy homes and acquire the real estate equity that helps fund retirement.
"Homeownership and traditional ways of building assets are just not there for Millennials," says Caroline Servat, also a senior associate, Milken Institute, and, like Burstein, also a Millennial.
From Sacrificing To Unlocking Achievements
The Silent Generation that went from prewar hardship to postwar boom grokked the notion of saving for a rainy day. But as admirable as sacrificing for tomorrow may be, it doesn't fit today's instant-gratification culture of on-demand car service and same-day delivery.
Still, today's technology can support fiscal responsibility, taking the tedium out of planning and delivering ultra-personalized service by automatically crunching the numbers to understand the desires of each customer. For instance, John Hancock's Active Intelligence team recently helped a company figure out which why a large number of employees were opting out of its retirement plans. That data analysis gave the company's HR department insight to reverse the trend.
Hancock also empowers individuals directly. Its new Twine app walks users through quick, simple instructions to set and execute financial goals—saving for a vacation this year, a wedding next, or income stability decades in the future. Signup is quick and 100% digital, of course. But clients always have the option to call and speak with a human when they need extra help.
Twine doesn't judge priorities, the size of the paycheck funding them, or the credit card balance that competes. "We start by focusing in the app on what they worry about," says John Hancock's Dorval. "Saving for a down payment for a house and doing that in a joint way with your spouse, saving for wedding, for family vacation."
This year's vacation may be the most important goal—recharging a mind and soul and keeping us sane so we can keep earning. Investing in today's health is also an investment in tomorrow's retirement. Longevity planning encompasses a whole life, from today's needs to tomorrow's aspirations. "What we heard people tell us, what leads to happy fulfilled lives, what makes your family happy, is doing things we'll remember later on," says Dorval. "So it's a lighter touch in the app, more fun and engaging."
Simple, clear technological tools break the usual dichotomy in financial planning: Either pay off the loan or save for retirement. Even if young people can set modest goals, they still get in the habit of thinking about the future. "It doesn't have to be a this-or that conversation," says Patrick Murphy, president of retirement plan services at John Hancock. "It can be a this-and-that conversation, but just in the right measure depending on where you are in your stage of life."
From video games to fitness apps, we're inundated with opportunities to score points, unlock achievements, and absorb the endorphin rush that accompanies them. Saving just $10 per week should be as celebrated as hitting 10,000 steps per day. As with fitness, those little rewards reinforce good habits, at least keeping longterm goals in mind until people have more means to put towards them. Twine calls out financial achievements with reminders of little victories.
One of the greatest achievements in human history—the extension of healthy lives—should be celebrated, not feared. "Old" people will bankrupt our governments and suck wealth from the younger generations, goes the gloomy version. But getting older doesn't mean getting idle. People who live longer can contribute longer; and mainstreaming technologies from AI assistants to self-driving cars will certainly narrow the gap between what the younger and older can do.
Perhaps today's younger generations won't be able to save up for a future life of endless golf. But how many of them would want that, anyway? When we see life as a continuum, instead of two stages—before and after 65—we can begin to strategize for a lifetime of fulfillment and of growth, beginning right now, and continuing all the way through, without sacrifice at either end. That's how we reinvent retirement.
This article is not intended to provide financial advice. It is intended to promote awareness and is for educational purposes only. It has been created for and commissioned by John Hancock.