Increasing longevity in the U.S. and elsewhere is the biggest retirement challenge for plan executives, money managers and, especially, individuals who increasingly are in charge of saving for their own retirement, said speakers at Pensions & Investments’ West Coast Defined Contribution Conference.
Investors should consider the “possibilities of older people, not just in the United States but around the world, as a sort of marketable economic opportunity,” said Paul Irving, chairman at the Milken Institute Center for the Future of Aging. Advances in medicine, sanitation and safety are raising life expectancies and people want to remain in the workforce longer, he said at the conference, held Oct. 18-20 in San Francisco.
The “intersection of demographics and the possibilities of innovation of products and services” for older adults is a “powerful opportunity,” Mr. Irving said.
Put another way, if the longevity economy — the economic activity of adults 50 years and older, and the products and services used by them — were its own country, it would have the third-largest economy in the world with a gross domestic product of $7.1 trillion, Mr. Irving said.
Keynote speaker Moshe A. Milevsky, executive director of the Individual Finance and Insurance Divisions Center and associate professor at York University, Toronto, argued that the “volatility of longevity is on the same order of magnitude as the stock market. You need a risk management strategy for both.”
Instructing attendees on the need to merge life annuities with lifecycle funds, Mr. Milevsky explained: “Twenty-first century asset allocation is going to have to change as we grapple with the awareness that stocks and bonds aren’t going to be enough to create an outcome that is predictable and sustainable for employees for the rest of their life.”
Mr. Milevsky spent most of his remarks focused on the benefits of considering the use of lifetime income options, especially deferred-income annuities, as insurance for longevity.
“Low probability, high risk events” — like car accidents and floods in your basement — and living more than 80 years “are the things you insure for,” he said.
Increasing longevity, rising health-care and long-term care costs are putting pressure on people’s retirement security, said Aliya Wong, executive director of retirement policy at the U.S. Chamber of Commerce.
Ms Wong said she expects the definition of retirement security will broaden to include “overall financial well-being, health-care costs, and longevity concerns” and that plan executives and service providers will take it upon themselves to find solutions. While Congress hasn’t been overly active on retirement issues, there have been more peer to peer conversations among plan executives. Plan executives want to know what others are doing and “don’t want to wait for Washington to fix their problems,” she said.
Longevity issues were raised throughout a number of panel discussions.
Bluford W. Birdsong, vice president, participant engagement-marketing at Prudential Retirement, said one of the reasons people fail to address their financial needs for retirement is a failure to identify with their older selves. Helping them to do so can increase participation in a retirement plan, Mr. Birdsong said.
Speaking on the same panel, Roger W. Gray, director, institutional sales manager, retirement and benefit plan services at Bank of America Merrill Lynch, said one of the firm’s manufacturing clients, which he did not identify, was concerned about the work becoming too challenging for its aging employees.
Setting these employees’ up for financial wellness so they feel secure enough to retire, not only helps the employees, but also keeps the company’s health-care, workers’ compensation and liability costs down, he said.