Recipe for an Emerging Definition of Retirement

Recipe for An Emerging Definition of Retirement

By Valerie Paganelli


Sometimes more than one cook in the kitchen is a good thing. Such is the case with this panel of experts who each added their distinct flavor to a discussion about the current and future meaning of retirement.

Mix thoroughly the following ingredients: shifting demographics, evolving job profiles, industry–by–industry challenges, unpredictable economic markets and rising health care costs. Put mixture in saucepan and bring to a simmer, stirring frequently, while sprinkling in small dashes of personal savings, social insurance program changes, expert perspectives on healthy lifestyles and loneliness, employment until physically incapable and increased longevity. Watch closely, as the mixture can easily coagulate and become difficult to work with. Please note, this recipe may or may not yield a definition of retirement that universally satisfies the myriad of stakeholders, from government to employers to supporting industries to individuals.

This metaphoric recipe summarizes the Emerging Definitions of Retirement themes explored during a panel session of actuaries from around the world at the Society of Actuaries' 2008 Living to 100 Symposium. The panelists, representing a variety of perspectives on retirement, included the following experts:

  • ANNA RAPPAPORT, FSA, MAAA, EA, of Anna Rappaport Consulting, moderator of the panel and phased retiree from the United States.
  • STEVE HABERMAN, ASA, FIA, Professor of Actuarial Science at Cass Business School in the United Kingdom.
  • STEVE VERNON, FSA, MAAA, EA, of Rest–of–Life Communications, inspirational speaker and advocate for individuals in the United States, formerly with Watson Wyatt.
  • DOUG ANDREWS, FSA, FCIA, 30–year consultant, now retired, recently earned his Ph.D. in actuarial science at the University of Waterloo in Canada (thesis: international social retirement systems). Andrews is currently teaching actuarial science in the School of Mathematics at the University of Southampton in the United Kingdom.
  • VALERIE PAGANELLI, FSA, MAAA, EA, of Paganelli Consulting, Inc., employer advocate for emerging profiles of retirement in the United States.

The session also included video clips of other industry experts and people on the street interspersed during the discussion.1

The following excerpts from the session provide a high–level recap of the lively conversation that ensued among the panelists.


ANNA: I'm extremely interested in changing definitions of retirement from many different stakeholders' perspectives. For many years I have focused on policy and employer issues, as well as the individual. I'm a Mercer retiree.


1The video clips were research performed by Steve Vernon for the DVD, The Quest for Long Life, Health and Prosperity, a short retirement planning program found on the Rest–of–Life Communications Web site, I'm personally trying to live phased retirement and in that regard I have a consulting business. I'm very interested in the whole post–retirement period and how things change during retirement—sometimes called stages or phases of retirement.

VALERIE: I am a passionate "don't let the current system's framework lead us down the wrong path" retirement consultant. We must force ourselves to look beyond traditional forms of retirement. We are in the "what's in it for me" phase of the baby boom generation—an exploration of alternative forms of retirement. This means collating what employees are looking for (such as working a reduced or modified schedule with no intention of ever retiring) with what employers are offering (traditional benefits for predominantly full–time employees) and how to bridge the gap. It requires focusing on the employer community and assessing demographic urgency, readiness and durability of each organization. I'm a long–standing national consultant and advocate for employer involvement; retracing our steps from curt, cost–based decisions that took place over the last 15 years and rebuilding the employer as conduit—dismissing the word retirement and recognizing new profiles shaped organizationally as well as individually.

STEVE H: I bring an international perspective. I've worked in life insurance, in the U.K. Social Security system and have been an academic and researched the design of retirement income systems: defined benefit, which we tend not to discuss very much now and defined contribution, looking at the key issue of longevity and increasing lifetime. Increasing lifetime is not the only component of longevity. There's more uncertainty about increasing lifetimes. In the United Kingdom there is a government–appointed commission to look at longevity and population aging and its impact on providing economic security for the population. The reports say the solutions are obvious: we save more, we work longer or we're poorer in retirement. Being poorer in retirement is not socially acceptable, so saving more, working longer or a combination of those two is the focus.

DOUG: In balancing the costs associated with aging, there is, and will continue to be, a move toward defined contribution rather than defined benefit approaches. It's important that we continue to provide individuals with protection against uncertain calamitous risks. It's also important to provide floor levels of protection so that all of retirement income is not just related to employment history.

Another important factor is universal health care. If a universal health care system isn't available, individuals need to save significantly more for retirement—a very inefficient approach.

The level of expenses required in retirement to live adequately and how we represent that in financial planning for retirement is important. We don't want people to live in retirement in poverty, but the measures of expenditures and needs are unclear. The University of Waterloo is doing a study in this area. We're not only trying to define what the levels of expenses are, but also what is the standard of living of the elderly. Is it going down or is it staying the same?

Early retirement certainly puts pressure on the system and needs to be discouraged. There's no question that Canadians are retiring early: for the assumptions in the Canada Pension Plan Actuarial Valuation Report for 2009 and onward, the actuary is projecting that 60.5 percent of males and 66.5 percent of females will retire before age 65. In the Finland Social Security system the accrual rate from age 18 to age 52 is 1.5 percent; from age 53 to 62 it's 1.9 percent; and from age 63 to 67, it's 4.5 percent. This pattern has significant behavioral impact on people trying to make a decision about early retirement. Raising the normal retirement age is a given. Sweden is making gradual increases to reflect life expectancy; the United States is increasing in steps to age 67. Another approach to discourage early retirement is through the taxation system—for example, in Germany there is a higher tax rate on your public pension the earlier you retire.

STEVE V: I'm living phased retirement; helping individuals understand how they can live a long and prosperous life, both with their health and with their money. On the negative side, when you just look at the amounts of money people have saved, at the health of most Americans and at the cost of long–term care insurance, it's a train wreck coming. On the positive side, there's a lot of research showing us how we can live a healthy life, a long life. I'm excited about communicating that message—putting it out in a way that people will be influenced by it.

A lot of the challenges we face are behavioral. If you look at our society, the underlying assumption is that work is bad and that we're being cheated out of life or we're failures if we can't retire. That's an underlying assumption that I challenge.

I'm interested in approaches in communications that have good information that most people can understand and put together in an engaging and entertaining way so that it influences behavior.

The research is suggesting you could live to 90, 95 or 100. If that's the case, the money just isn't there to retire in your 50s or 60s, so retirement at those ages is a bad idea for a number of reasons.


ANNA: Being retired doesn't mean that you're less busy; it means that you get to do what you want to do. I think for all of us it means something different and it's really a chance to make and define what we want to do.

VALERIE: I wouldn't wait until near traditional retirement age to hand out a printed brochure to employees. We're looking at employee cohorts that won't have the choice of retirement, either because they weren't covered by pension plans their whole career or because they weren't good savers in their 401(k) plan. They're going to need to extend their working lives, forcing themselves into a new definition of retirement. I want to see employers harnessing the energy of these employees and acting as an advocate for educating and creating the new keep working retirement profile for these people.

DOUG: What about the poor? What does retirement mean for people that just don't have financial well–being? A very difficult question. When you start receiving some form of Social Security or a pension or you've qualified for Medicare, that changes how you think about your life and may be one of the clues to retirement.

STEVE H: Perhaps there's going to be flexibility in terms of the start of employment—so we're going to have longer periods in education to build up our human capital and skills and then we'll need to support this longer period of working. Perhaps we're going to have more flexible periods in education spattered through the working lifetime that will then lead to a changing balance between work and non–work.

STEVE V: I think for a lot of folks that don't have the assets, the new retirement is full–time work. With some non–wage income coming in, there is a little bit of flexibility in what kind of work you can take on. I think there are only a very lucky few who are going to have the ability to retire full–time at some early age.


STEVE V: One marketing approach that was used for retirement issues deliberately did not use the word retirement in the title. Instead, it was called, "The Quest for Long Life, Health and Prosperity." That title reveals the goal to reach for: long life, health and prosperity, rather than retirement. In the video clips shown during the session, John Robbins declined taking over as CEO of Baskin–Robbins and devoted his life to researching, writing and speaking about living a healthy lifestyle. He says diet plays a huge role in our health as well as exercise. He also says loneliness, or not having positive, meaningful relationships with others, kills people as fast as cigarettes.

STEVE H: Connected families were the traditional way of providing economic security before Social Security was invented in the 19th century. Perhaps they didn't retire at all; they continued working, but the family provided a level of engagement with the rest of society. The populations we look at are not homogenous; there are other factors that are going to be important. For example, there's very strong evidence in the United Kingdom that people who were born between 1925 and 1945 have much lower mortality rates. People argue it's the impact of a controlled diet during the rationing period from 1940 to the early 1950s.

VALERIE: It's a reality that we won't be entitled to social insurance benefits at as young an age as we have been historically. Policy makers haven't taken the bold moves necessary yet, but it will happen at some point and we, as individuals, need to be prepared for those policy changes in a way that we aren't today.


STEVE V: The average 401(k) balance of people in their 50s and 60s is woefully inadequate and this is a shock considering most of these people think they're going to retire at some time in their 60s. It's important to be able to convey how much money is needed in retirement. A very simple rule is called the 20 to 25 times rule: Ask yourself how much income do you need and then multiply it by 20 to 25 and that's the amount of financial resources you need. We have many, many people who think they're going to retire early. They're going to be extremely surprised when they find they have to retire late. Remember the story about a financial planner whose client came to him with $200,000 and the advisor asked, "What are your goals?" The near–retiree replied, "From that $200,000 I need a retirement income of $100,000 per year." And the financial planner said, "I can do that, but you have to die in two years."

VALERIE: We need to mitigate the business economic shock. I put forth an impassioned plea to employers to come back to the table. Employers have left retirement off the discussion list. They have defaulted to providing education materials that are provided by their vendors that focus on asset accumulation and define retirement as age 60 to 65; showing people beachcombing or with golf clubs or hiking boots—there isn't reality to that communication. Employers need to be a conduit for information that tells the real story that supports their business model and that creates an open dialogue.

STEVE H: The U.K. government has been advocating for some time that everyone should be saving more for retirement. Yet, at the same time for those who reach a retirement age with low–income entitlement and low savings, the state provides a safety net, so the interaction between that advice and the safety net is complicated. I think you actually have disincentives in some systems.


STEVE V: Lots of people say they want to keep working in retirement, but it's sort of a double–edged sword. There's the notion that they want to keep working, but there's also the notion that employers don't necessarily want to hire older workers for a variety of reasons, so it puts the burden on the older worker to retrain and acquire new skills and knowledge. There aren't enough employers for all the older workers that there will be.

DOUG: An attitude adjustment on behalf of both employers and employees is seniority–based pay. People are going to have to get over that idea. Also, when you have more flexible work arrangements and people only wanting to do certain things, you need a lot more support to fill in around them and that's going to take an attitude adjustment.

ANNA: There are a lot of people working at their own thing and companies need to decide if it's really important and move ahead. On the rehiring retirees end, I think there's a lot of potential for use of third parties. Phased retirement is really about flexibility of place, schedule and duties and about people who want to do what they want to do when they want to do it, versus a full–time commitment. It's not just that people want to work longer. They want to work longer and differently in many cases.


From the author's perspective, one conclusion from the session is that we all need to decide whether we're going to be proactive or reactive to the changing profile of retirement. To allow new forms of retirement to emerge, it's worthwhile to look past regulatory and legislative barriers and recognize that there are numerous ways to encourage and incent people to continue working. The decline of defined benefit plans shifts the retirement decision to the employee, leaving employers vulnerable to indirect business risks as employees find themselves unable to afford to retire or able to afford to retire and hence not be retained in a traditional workplace. For the employer, there is need for more education, information and involvement at senior leadership levels to articulate readiness around retirement. For the employees, it's the engagement factor; it's the flexibility to continue to do something you love. There are certainly cost–benefit economic factors, but there are ways to provide for the economics. In my mind it's always doable. It's a matter of whether you do it in crisis mode or are proactive about it.

NOTE: The session concluded with an overview presentation by Anna Rappaport of the 2007 SOA Survey of the Risk and Process of Retirement. Several reports, including complete survey results and special reports focusing on the Phases of Retirement and Health and Long Term Care, can be found on the SOA Web site. A transcript from this session is also available in the online 2008 Living to 100 monograph. Note that a handout is available on the Web site or through the SOA office that provides an overview of the research available.

Valerie Paganelli, FSA, MAAA, EA, is senior consulting actuary with Paganelli Consulting. She can be contacted at: