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Industry Voices

Commentary: Rethinking investment, work life and retirement

Nearly all nations are experiencing a combination of population aging and declining fertility rates. Forecasts predict that by 2047, there will be more people worldwide older than 60 years than children younger than 15. The fastest growing cohort in the U.S. is people age 85 and older. Studies suggest half the children born after 2000 might live more than 100 years.

Demographic doomsayers look at these trends and predict grave socioeconomic consequences: pension meltdowns, generational warfare, the implosion of national health-care systems. Perhaps. But we should consider history: 220 years ago, Thomas Malthus predicted disaster stemming from population growth, but he did not foresee the technological changes that arose as well. Today's Malthusian aging-futurists assume we will maintain policies, practices and societal norms created for lifespans and lifestyles many decades ago.

To translate longevity into the grand opportunity it is, investment, employer and retirement planning communities must take creative urgent action today.

New investment thesis for old age

The longevity economy is the mass of consumers over age 50 — the world's most misunderstood market. Older consumers typically are written off or ignored by business. Companies that do invest in the 50-plus market see a vast population with needs but few novel wants. New medications, diagnostics, devices and skilled nursing facilities are seen as the primary investment opportunities. This is not an incorrect investment thesis, but it is missing something very big.

The 50-plus market in the U.S. constitutes nearly 70% of the nation's consumer spending. Globally, consumers 60 years and older have the spending power equal to the third largest economy in the world, after the U.S. and China. Few would suggest that today's older population (let alone tomorrow's) has the same attitudes and behaviors of previous generations. Aging baby boomers, and the generations that will follow, have great expectations of not simply living longer, but living better.

Investment thinking must adapt to a new, older, primarily female, consumer that has unprecedented education, income and experience. Investing in the longevity economy includes responding to needs, but it also is about anticipating new wants. Here are just a few market opportunities: technology-enabled home services that provide convenience and support at the same time; new models of lifelong education, not just for personal enrichment but to remain competitive in the workplace; and new approaches to leisure that go beyond beaches and golf courses. Investing in the longevity economy is about finding companies that want to invent an entirely a new life stage.

5 generations at work

Longer life is not simply a story of more older workers; it is about more generations at work. From those over age 72 who are still working, to older boomers, younger boomers, Gen Xers, millennials, to the Generation Z workers born after 2000, today's employers are managing a five-generation workplace.

A generation is not an age, it is a collective experience. Experiences in young adulthood, such as the movements of the economy, history-making events, technological shifts and cultural trends shape attitudes and influence behaviors typically characterized as a generation. Employers are now confronting greater attitude and behavioral diversity in the workplace then ever before.

Even the definition of career and the role of the employer varies across generations. Employees age 72 and older, and many older boomers see decades of work at one firm as the prototypical career. The downturns and layoffs of the 1980s and 1990s have made it difficult for many younger boomers and Gen Xers to view their employer as a lifelong option. Millennials and Gen Zers, being much more technologically independent than previous generations, are more likely to see work as a gig — viewing a career as a series of jobs and employers that merely provide income and individual skills development.

Given the pace of technological change and talent shortages, lifelong education and knowledge management are critical. Consider the number of professions that did not exist a few years ago to which both older and younger workers must adapt: data scientist, experience designer, sustainability manager. Many professions — e.g., energy, construction, aerospace — are desperately seeking to keep older workers, both for their accumulated knowledge and because there are few younger workers to take their place.

Physical redesign of the workplace will be required. Office environments will need to adapt lighting and ergonomic improvements to accommodate aging eyes and backs. Manufacturing and logistics operations will need to integrate robotics and collaborative robotics to enable all workers to work with fewer injuries.

Despite all of the differences, there also are converging generational values. ​ Flexibility is now sought by all employees. Younger workers seek flexible hours to accommodate active lifestyles and child care. Older workers are seeking greater flexibility to provide time for caregiving or to ease transition into retirement.

A new retirement story

The idea of retirement, pensions and benefits is only a century-plus old. The redefinition of retirement is underway — and being shaped by individuals navigating a profoundly different context of old age.

Retirement was once a short period of life after work. Today, people are likely to live to 85-plus years old, making retirement last decades, not just a few years.

According to AARP, nearly 40% of Americans age 50 and older expect to work "until they drop." For many, work in retirement is about ensuring that one's "wealthspan" is as long as one's lifespan. Work is also about meaning, a reason to get up in the morning. Perhaps most importantly, it's a way of getting out of the house. In one MIT AgeLab study, a respondent was asked why he went back to work in retirement; his wife interjected quickly, bringing both a chuckle and an insight — "I married him for life, not for lunch."

Families, not finances alone, have always been key to retiring well, with adult children, spouses and siblings providing support for tasks such as home maintenance, transportation and caregiving. But the average family of today is smaller and more fragmented. The highest divorce rate is now among those age 50-plus. Gray divorce has increased nearly 700% since 1960. Moreover, the baby boomers and Gen Xers had fewer children than their parents. Fewer children, working children and children that live across the country unable to provide support means a new cost in retirement — replacing the adult child.

An increasing number of retirees, especially women, live alone. How to complete the everyday tasks that might once have been shared with a partner or adult child at a manageable cost is a growing challenge.

Retirement plan sponsors and the broader financial services industry already are finding that educating people about the cost of retirement is not enough to influence savings behaviors. Instead, an expanded role that helps people navigate decades of life after work is evolving. Educating people about the changing context of life in retirement with concrete, easy-to-visualize stories about life after full-time work might prove to be a more effective means to engage people in pre-retirement behaviors.

The longevity economy is both a great investment opportunity and disrupter to current ideas of work and retirement. A new investment thesis for the aging population, one that includes but goes beyond the health needs, must emerge. The next-generation older consumer was excited and delighted by new products, services and experiences at every prior life stage. They are not likely to lower their expectations in retirement. A multigenerational workforce with a diversity of attitudes and behaviors will bring challenges, but also will introduce a more creative workplace.

Today's retirement plans and engagement strategies were written for yesterday's retirees. The longevity economy now requires a different retirement narrative — one that includes financial security as well as a story that helps people navigate the new old age.

Joseph F. Coughlin is director of the MIT AgeLab at the Massachusetts Institute of Technology, Cambridge, Mass., and author of "The Longevity Economy: Unlocking the World's Fastest-Growing, Most Misunderstood Market." This content represents the views of the author. It was submitted and edited under P&I guidelines, but is not a product of P&I's editorial team.