Sequenting: Jettisoning Retirement and financing a multi-stage life

For most of history, people believed themselves only to live two stages of life: childhood and adulthood. However, the 20th century saw the recognition of adolescence and old age as additional relevant and translated this into the three-stage career – education, work career, retirement.  Then, like the changes that have come this century, Lynda Gratton and Andrew Scott’s The 100-year Life and its implications for an emergent multi-stage life, followed soon after. 

The last two centuries have seen an increase in life expectancy of two years per decade.  On average across developed countries, people aged 65 could expect to live a further 20 years (actually it is 19.7 years currently in the OECD, but I’m rounding to keep you from dozing off) years.  In Singapore the average is 22 years and a 65-year-old man has only a 9% chance of dying within the next 5 years (impacts of Covid excepted). 

Underestimating how long you will live can be costly, as now-outdated government pension schemes  and heavily under-funded private pension schemes discovered in the 80s, while their actuarial models languished on trends from the 1960s, at best.  This wasn’t because of ignorance or recklessness, but simply from insufficient hindsight to have noted the extended lifetimes people were living, the fruit of improved hygiene, nutrition and health-care.   

Gradually, private pensions shifted to ‘defined-contribution’ structures, where what you put in and how it is invested governs how much money you have for your retirement, compared with those troubled ‘defined benefit’ plans which guaranteed a percentage of your last drawn salary.  The defined contribution structure is good for Governments (CPF is such a scheme) and employers but tricky for individuals, who became responsible for ensuring they do not outlive their savings.  

The new life-stages emerging between work and old age complicates retirement financing.  Paradoxically it could be the answer too, depending on how you handle it. 

To accommodate these changes, the financial industry needs an overhaul.  “In a multi-stage life, the idea of hitting a cliff-edge retirement at 65 and then living off an annuity is outdated,” says Alistair Byrne, from State Street Global Advisors.

Running on empty

Many people simply do not save enough. According to the National Institute on Retirement Security (NIRS), more than 75% of Americans have retirement savings that fall short of conservative savings targets, and 21% aren’t saving at all.  In Britain 20% of women and 12% of men between 55 and 65 have no retirement savings.  

Singapore has a gross savings rate of 40%, but that includes the Government’s savings (ie. it includes the Government’s reserves).  Many citizens have their savings locked up in their homes.  A 2015 survey revealed that 44% had not started saving for retirement; of those, 36% could not afford to save. Of Savers, 25 % were saving for other priorities such as childrens’ education and 19 % were paying off loans.  Of those who had started saving for retirement, 9% were planning for sufficient retirement funds for five years or less.

With the steady rise in life expectancy and the demise of guaranteed pensions, most of today’s workers will need to save more than their parents did. 

Some do not earn enough to put money aside, but many consistently just underestimate how much longer they will live and overestimate how long their money will last. 

Overfull

On the flip side, many retirees spend less than they can afford.  In the absence of reliable predictors of how long they will live and in what state of health, with no way to forecast inflation or interest rates and markets, they can be forgiven a little conservatism in their savings outlook. 

However, this is why some economists warn of a silver tsunami or other disaster scenario for aging societies.   When older people should be spending and savouring the fruit of their labours, they hoard against the uncertainty of the future, eager to hang on to dignity instead of looking to the state to support them.  In a country such as Singapore where, by 2030, a whole quarter of the population will be 25 and over, such parsimony could  presage a significant drag on the economy.

Sequential

The entire concept of retirement, what it means and when it should occur begs re-examination.  A new lexicon of terms clearly needs to be devised to describe that phase of life, which truly only begins when physical limitations, a desire for a change or ageism compel a re-examination.  These imposed reconsideration dates can be useful if they instigate a re-ordering of priorities for the next lap. 

This gap, phase, stage-of-life, call it what you will, begs a name.  I’m referring to that time-slab of opportunity between your imposed ‘retirement’ and when age and health press for a real break, perhaps 15 to 20 years away.  The children are grown, the home probably paid for and you’re healthy.

I’m calling it the “Sequent” phase until someone suggests a more poetic name.

Trippin’

The longer that people live, the more varied this phase. 

For each person, sequenting might mean something else.  It is a phase defined only by choice.  Some will take breaks to travel, some to look after parents, some return to school.   Time off or an interregnum to do nothing, to worship, find purpose or just breathe.  Sequenting may be a time of unpaid childcare while the kids make their way in life.  In Asian societies and some traditional European ones, many grandmothers provide daily care for their grandchildren, which frees parents to go out to work, saving huge sums on child care. Apart from providing support within the family, sequenters may also aspire to do voluntary work.  Some change jobs, extend their current contracts or start new businesses.

A number of studies have found that this benefits not only their new causes of work but also their own physical and mental health. 

When they’re tired of the breaks, they should have opportunities to get back to work, full or part-time.  

Income needs

Many sequenters-to-be plan to work past their formal retirement age, for fulfilment or because they need the money. A recent survey found that more than half of workers over 55 hoped for a flexible transition to retirement but only a quarter said their employers would let them work part-time. Age discrimination is also a serious obstacle to keeping the able and willing in work.

Many respond by starting their own businesses.  There has lately grown a view that only 20 to 30–somethings start new businesses.  But prime-time for entrepreneurship is actually middle-age.  A 2018 article by the Harvard Business Review found that average age of entrepreneurs, at the time they founded their companies, was 42.  The average, however conceals large variations.  Amongst software startups, the average age is 40. In oil and gas or biotechnology the average age is closer to 47.  

According to The Economist, sequenters (not their term) are also becoming entrepreneurs. In America those between 55 and 65 are now 65% more likely to start up companies than those between 20 and 34.  In Britain 40% of new founders are over 50, and almost 60% of the over-70s who are still working are self-employed, which says as much about the limitations of conventional workplaces as about these seniors’ entrepreneurial spirit.  Seniors facing retirement see the start-up as their second act and the way to remain fruitfully engaged, while fighting off senility.

Many try their luck in the gig economy. 

The Economist again: 

“Though gigging is usually seen as something that young people do, in many ways it suits older people better. They are often content to work part-time, are not looking for career progression and are better able to deal with the precariousness of such jobs. A quarter of drivers for Uber, an on-demand taxi service, are over 50. More broadly, a quarter of all Americans who say they work in the “sharing economy” are over 55, according to PwC, a consultancy.

“Now I manage my own future. I manage my own life,” says Aykut Durgun, a 60-year-old former retail manager who drives his beautifully kept Mazda 5 for Uber and Lyft in San Francisco. The change from managing 40 people to being ordered around by a 20-year-old in the back seat took some getting used to, but he loves the socialising, flexibility and challenge of navigating the city’s grid. The money isn’t bad either; he earns about $6,000 a month before tax and sees no reason to slow down: “It’s the best way to prevent dementia.”

It helps that the gig economy has moved well beyond delivering pizzas or people. Businesses that offer on-demand lawyers, accountants, teachers and personal assistants are finding plenty of recruits among older people. Wahve (short for Work At Home Vintage Experts), a New York-based company, provides work for hundreds of former finance and insurance professionals, mostly in their 60s and 70s. “Carriers and brokers have huge talent problems, it takes years to train an underwriter,” says Sharon Emek, the firm’s 71-year-old founder. She realised boomers were retiring from the workforce but didn’t want to stop working; so now they are “pre-tiring”. ”

They’re sequenting.

In Singapore, we’re setting up Greygigz.  No prizes for guessing our mission.

Published on LinkedIn on 19 October 2021