Money and Modern Longevity
by Michael Hodin
For years, financial services leaders like TIAA have been at the forefront of the discussion about longevity, demographics, and what it means for people’s finances, health, work, and retirement. Yet even as the high-level conversation has progressed by leaps and bounds, there is still much work to do translating the huge transformational shifts into everyday rules of thumb, language, and mental models for how individuals think, talk, and make decisions about their finances — in other words, their “Retirement Fluency.” If we have reached a milestone that for the history of humanity has been unimaginable — longevity to 100 as a matter of course — what must follow is how we live, work, and retire differently in this new era.
Retirement Fluency is the term used in the latest research from the TIAA Institute, New insights for improving financial well-being, which is introduced as a new concept that, alongside other recent thought leadership like “longevity literacy” and “longevity fitness,” will help us think, act and communicate differently as we adapt to the demands and opportunities of long lives. It will guide us on this new life journey where the length is so profoundly different as to require a new way of thinking and expressing the financial needs that arise. Essentially, a person needs to know how long modern lives stretch for, what tools can help them get there, and what actions they should take to put those tools into practice.
Unfortunately, but perhaps not at all surprising, all this is so new. The research finds Americans are not yet fluent. Survey respondents only correctly answered about 40% of the questions, with gaps across a range of areas:
· Just 44% recognized that a 401(k) with employer match would be a better way to save than an IRA without the match.
· Only 53% knew that an annuity offers income guaranteed for their lifetime.
· More than half didn’t know that Social Security offers lifetime benefits.
Compounding the problem, the vast majority of people did not understand the full length of today’s lives, potentially causing them to underestimate how much they would need to save for their later decades. In other words, how many of us are even asking how much we truly need if we assume both the reality of long lives and the new risks and opportunities associated with that longevity, like health challenges, elder caregiving, yearning for new kind of work in a “post-retirement phase,” and the ability to pursue passions from travel to learning a new language?
This gap between what the new longevity reality brings and our readiness to embrace it may be understandable: It has taken years to put aging on the radar of business leaders, policymakers, experts, and others who spend their careers on these sorts of high-level topics. Nor have we really gotten that far. But now, how can we do the same for every American, and indeed for every person in aging societies around the world? How do we enable Retirement Fluency for all of us? A few ideas stand out:
· Longevity starts the conversation. It all begins with an understanding of the magnitude of the change in the length — and financial demands — of 21st century lives, which reach for decades past traditional retirement age. This fact should be included in communications from financial services companies, employers, and other sources that people already trust for information about saving, investing, and retirement. Once this is more widely recognized, people will have the impetus to reconsider how they are saving. They will begin to realize a fluency for this new reality.
· Many options, one goal. There is no one-size-fits-all tool for lifelong financial wellness; there are many. People need the information to help them find the mix of working, saving, investing, and spending that is right for their particular needs and priorities. And they must begin to factor in the risks and opportunities of long lives. Keep in mind that this may include working past traditional retirement age, as the majority of people plan to, especially with more flexible work options, coaching and mentoring rules, second careers, and passions for considerable activity that must be funded. Add the possibility of health risk to the mix, and it gets even more challenging.
· The longevity services industry? Hand-in-hand with these different options is guidance from financial services companies on a range of different plans and vehicles, from annuities to 401(k)s. The research shows that people are struggling to understand what is available and how it all works. The industry can step in to help people navigate these choices, all in the wider context of paying for long lives. But it must have a language to speak to people, a language — retirement fluency — that is understood so it can be acted upon.
· Addressing disparities. The research shows significant disparities in retirement fluency, with lower levels for younger generations, women, and Black and Hispanic older adults. Addressing these disparities should be a focus of retirement fluency efforts, alongside policies like tools to help younger employees save for retirement even as manage debt from school to starter housing.
As we move forward, we must bridge the gap between high-level discussions and the everyday decisions and information needed to help people navigate their later years with confidence. Employers, the financial services industry, policymakers, and other stakeholders all have a key role to play in continuing to advance the conversation and maximize best outcomes.
