Is 75 the New Normal Retirement Age?

As people live longer and the cost of living continues to rise, the traditional retirement age of 65 is becoming increasingly unrealistic for many. With inflation remaining stubbornly high and the preference for drawdowns over annuity purchases, there’s a real risk of outliving our capital. This changing landscape requires a re-evaluation of what we consider the ‘normal’ retirement age, possibly shifting it from 65 to 75.

The Shift in Life Expectancy

Over the past two decades, global life expectancy has seen a notable increase. From 2000 to 2019, it rose from 67 to 73 years and is projected to increase further. According to the UN, by 2050, one in six people globally will be aged 65 or older. This demographic shift means that more people are leaving the workforce than entering it, a trend that is expected to continue across numerous countries, including the UK, Brazil, India, and the USA.

Rebecca Sear, a professor at the London School of Hygiene and Tropical Medicine, highlights that “Life expectancy has been continuing to go up since the mid-1850s in the UK, but the retirement age hasn’t changed that much.” This mismatch between longevity and working years calls for a drastic rethink of retirement planning.

Economic Realities

The economic landscape has also transformed. Retirement savings are no longer as robust as they once were, with many people finding that their pensions are insufficient to support a comfortable retirement. Chris Parry, from Cardiff Metropolitan University, notes that previously, UK citizens might spend only 8-10% of their lives on a pension, a figure that is rapidly increasing as lifespans extend.

The CEO of BlackRock, Larry Fink, in his annual letter to investors, expressed concern that retiring in one’s 60s might soon be an impossibility for the majority, given the financial pressures and increased life expectancy.

Finding Work That Doesn’t Feel Like Work

One significant challenge is finding engaging work that doesn’t feel burdensome as we age. The ideal scenario is to transition into roles that provide not just financial income but also personal fulfilment and social interaction—work from which individuals do not wish to retire.

The Game Plan

At the heart of the new era of financial planning championed by the Academy of Life Planning lies “The Game Plan”, a holistic strategy designed to address lifetime cash flow deficits not merely through savings but by generating sustainable income through Ikigai projects. Ikigai, a Japanese concept, integrates what you are good at and what you love doing with what the world needs and is willing to pay for. This approach transcends traditional financial planning, which typically focuses on helping individuals save and manage already accumulated wealth. Instead, The Game Plan facilitates the discovery and implementation of personally fulfilling projects that not only promise financial stability but also enhance overall well-being. By aligning professional endeavours with personal passion and societal needs, the Academy of Life Planning provides a comprehensive financial strategy that is both innovative and deeply transformative.

Government and Policy Adjustments

Government programmes have not kept pace with these changes. For example, in the US, Medicare eligibility begins at 65, and full Social Security benefits start at 67—ages that are increasingly seen as outdated. The UK is already taking steps to address this, with the State Pension age set to rise from 66 to 67 between 2026 and 2028, and a potential increase to 68 after 2044.

A New Paradigm

The concept of retiring at 65 was a product of mid-20th Century economic conditions and life expectancies. Today, it seems more pragmatic to view 75 as the new 65, considering the current health, economic, and demographic trends. This isn’t just about extending working years but about redefining them to include more flexibility, part-time options, and transitions into roles that are less physically demanding but still mentally stimulating.

Conclusion

Adapting to this new reality requires not only individual adjustments but also systemic changes in how we view and manage retirement. It involves more than just financial planning; it’s about culturally redefining the meaning of work and retirement. The shift to viewing 75 as the new 65 could be essential for maintaining both economic stability and quality of life as we age. As we rethink retirement, perhaps it’s time also to redefine what it means to live a fulfilling life in our later years.

Questions & Answers

Q1: Why is the traditional retirement age of 65 becoming unrealistic for many?

A1: The age of 65 is becoming unrealistic as a retirement benchmark due to increased life expectancy, higher living costs, and the changing nature of wealth accumulation. People are living longer and healthier lives, which extends their need for sustainable income well beyond the age of 65.

Q2: What did Larry Fink, CEO of BlackRock, say about the feasibility of retiring at 65?

A2: Larry Fink warned that retiring comfortably at 65 is becoming increasingly difficult. He highlighted challenges such as the global increase in life expectancy, the fraying of social safety nets, and the rising cost of living, all of which make early retirement less feasible for the majority of workers.

Q3: What are some significant demographic changes affecting retirement planning?

A3: Significant changes include the increase in global life expectancy and the shifting age demographics, where a larger segment of the population is entering old age. For instance, by 2050, one in six people worldwide will be aged 65 or older, potentially leading to fewer people in the workforce compared to retirees.

Q4: How are current economic conditions affecting retirement savings?

A4: Current economic conditions, marked by rising inflation and shifting wealth patterns, are diminishing the value of savings. Many retirees find that their pensions and savings do not stretch as far as they used to, necessitating continued employment past traditional retirement ages.

Q5: What does the adjustment of the State Pension age in the UK signify?

A5: The UK’s decision to gradually raise the State Pension age from 66 to 67, and potentially to 68 after 2044, reflects governmental recognition that earlier retirement ages are no longer practical in light of modern longevity and economic realities. This adjustment aims to balance the pension system amidst an ageing population.

Q6: What could be the benefits of redefining work for those aged 65 and older?

A6: Redefining work for the older population could mean creating more flexible, part-time, and less physically demanding roles that provide not only financial benefits but also mental stimulation and social interaction. This shift could help individuals remain integrated in society, maintain their mental health, and reduce the financial strains on retirement systems.

Q7: Why might 75 become considered the new 65 for retirement?

A7: Considering the extended life expectancy, healthier senior years, and insufficient retirement savings at age 65, shifting the normal retirement age to 75 could better align with modern economic and demographic trends. This adjustment would help ensure that individuals do not outlive their savings and continue to have a fulfilling life post-retirement.

These Q&A entries could serve to further elucidate the points made in the article and help readers understand the complexities of planning for retirement in today’s changing world.