A straw poll of millennials in my office reveals that young Londoners struggling to hoist themselves onto the housing ladder – while also paying down student debt – have no plans to retire in any conventional sense. It’s not just that they don’t think they can: they aren’t sure they want to.
I’m no millennial but seeing my father still pine for work 10 years after retirement is a good wake-up call to me and my generation that maybe retirement is not all it’s cracked up to be. (My serial entrepreneur mother is busy cooking up her next venture at age 73…)
As an industry we spend a lot of time striking terror into people. We tell them that they need to save huge sums to be comfortable in their dotage. A recent Which? survey suggested that for a “comfortable post-tax income of £26,000 per year, a lifetime income via an index-linked, joint-life annuity will require a pot of £370,000.” So the mountain is £370,000. For most people the idea of saving that sum is unfathomable.
Pension Bee broke it down further saying that couples starting to save in their 30s would need to set aside £4.95 a day.
While this feels more achievable, again if the idea of retiring at age 67 never to work again doesn’t hit home with the investor, it will be hard to get them to sacrifice a few pints a week. Rather than scaring investors into inertia, we could encourage them to take control and create a financial safety net.
Nearly half of investors in a survey we conducted earlier this year said that financial security was their primary investing goal. The biggest barrier to investing among savers who don’t yet invest is affordability. They simply don’t feel they have enough money to invest.
The Which? and Pension Bee analysis do a good job of breaking it down but the goal is still retirement. Setting rules of thumb for how much we all ought to be putting away to cover more short-term needs may be more effective.
Research has shown time and again that once people save some money, they are more likely to save more. And once pots become large enough people start to engage more with them. We can start with incremental achievable steps rather than massive leaps.
So a case can be made that we need to rethink retirement itself. In a choppy 21st century economy, as opposed to the stable end-of-the-20th century one, who feels they can afford to retire? And with better healthcare and more active lifestyles, many older people want to remain in work for longer, since it is a source of structure, creativity and purpose – not just income.
At Platforum, we labelled this cohort the “grey glide” – those who straddle both work and retirement. The Economist recently labelled this group “pre-retirees”.
At the same time, we need to reconsider the way we spur people to save for retirement. Rather than scaring investors into inertia, we could encourage them to take control and create a financial safety net.
Creating a safety net with three months of expenses is a good place to start. It will allow people to feel in control and may just be the first step toward long-term saving and investing.
In a repartee on Twitter this week I suggested: “You need a financial safety net but wouldn’t you rather have a cushion?” Mike Morrison built on the idea, suggesting that those with more financial ambition might want a duvet.
Sadly, most people wake in their 50s to discover a threadbare quilt. But any safety blanket is better than nothing when the winds of time start to blow.
The implication is that we need a revolution in financial-services communications. The industry has the fancy products and funds and digital offerings. But it lacks a new method to sell them for new times to new customers with a new set of interests and constraints. And if anyone disagrees, they should corral the millennials in their own offices and ask.
As an industry, we must put our heads together and find a better way. And that hard work must begin now.