Notes, Views, and the Occasional Provocation March / April 2013 

Retirement as we know it today is largely a race of time against money. Longer lives are putting enormous strains on a model that was never designed to fund several decades without employment earnings. In this season of new beginnings, it's a good time to ask whether we ought to just start over and create an entirely new model, discussed in the article below.

Coincidentally, I was interviewed recently by NBC Bay Area regarding the feasibility of retirement in the Bay Area. You can watch the video and read the transcript using the link below.

Happy Spring,

Milo Benningfield




What Will Replace Retirement?
Humans have been around for 200,000 years, retirement for less than a hundred. No wonder we didn't get it right the first time around. more

BFA Media Quotes
Recent media quotes. more




What Will Replace Retirement?
Another depressing report came out this month about Americans' lack of preparedness for retirement. We're saving far less than we need and living longer than ever. The extent of the mismatch between the money required for retirement and the money set aside is, as ever, astounding.

These kinds of reports make most Americans seem short-sighted and immature. Like the grasshopper in Aesop's fable, they appear to believe that summer will last forever and fail to set aside any surplus today for the winter of their lives tomorrow.

But what if the problem lies not in bad habits, but with the idea of retirement itself? What if the 25-40-25 model – twenty-five years of education, forty years of work, and twenty-five years of well-earned leisure – simply doesn't work?

The recent report by the Employee Benefit Research Institute certainly supports this view. Fifty-seven percent of Americans surveyed say they've accumulated less than $25,000 in savings and investments, excluding their homes. Almost a third of them said they have no confidence that they'll have enough money to retire comfortably.

Even if people do save enough for retirement, they now must make the money last – a test that many monarchies and corporations have failed. Bad luck on top of bad decisions dooms many portfolios almost as soon as retirement begins.

Our demographics conspire against us. In 1900, the average U.S. lifespan was 47 years. Today it's almost 80 years and headed toward 100. We've doubled the time we spend on this planet, yet still expect to spend the last third of it free of any work at all.

If this sounds like a recipe for disappointment, you're not alone. Millions of baby boomers are reaching the same conclusion. "Does everyone know about this?" a client once asked me in a hushed voice as we stared at the enormous retirement shortfall on the screen.

We shouldn't be surprised. Less than a century old, retirement as a concept is a newborn in the span of human history. Our colonial ancestors wouldn't have recognized it. Living in an agrarian society, their ideal wasn't to stop work completely all at once, but rather to hand off labor-intensive chores on the farm or in the shop gradually while continuing to supervise operations with their wisdom and experience.

Retirement began after industrialization. As people moved to the cities and factories replaced farms, productivity and efficiency became the new ideals; old age became the enemy. A generational tension arose as employers began to value younger workers over older ones whom they perceived as too slow to operate ever-faster machines. In 1905, an infamous speech at a Johns Hopkins medical-school graduation sparked national outrage by suggesting that everyone be chloroformed at age sixty-five to make room for younger folks.

The rise of the corporate pension smoothed these tensions, providing a "just reward" to older workers for years of service. Employers saw pensions as a way to bind and control workers during their younger years and a more palatable means of easing them off the assembly line later on. Housing developers, leisure industries and financial-service firms seized the development of pensions as well and began promoting the idea of the "Golden Years."

Just as the idea was gaining traction, employers dropped their pensions. Funding retirement turned out to be more difficult than turning a profit, so most companies turned to employees and said, "Here, you do it" with worker-funded 401(k) plans. Rising stock markets eased this transition and obscured the question of how individuals were going to accomplish what corporations, with all their consultants, actuaries and pension committees, could not.

Today, there are 10,000 baby boomers turning sixty every day. What should have been a joyous liberation from work is turning into a generational disaster.

Economists and retirement specialists have a number of suggestions for how to improve the current model – e.g., forced savings accounts to help accumulate resources; inflation-protected bonds to make them last. Such tools will help. But if the traditional retirement model is fundamentally flawed, we'll need more than tweaks; we'll need to jettison it.

This is what social entrepreneur Marc Freedman proposes in his latest book "The Big Shift: Navigating The New Stage Beyond Midlife." Drawing upon the idea in other cultures of a "third act" between middle and older adulthood, he proposes creating a new social construct he calls the "encore career."

Why, you say, if I hated my first job, would I want a second one? Because, says Mr. Freedman, longer lives mean second chances. Under the new system, with higher education available to people in the middle of their lives, not just on the front end between eighteen and twenty-five, you could go back to school, retrain, and try a different career that will last another decade or more.

Fine, you say, sign me up, where do I go? This is the most important message of Mr. Freedman's book: we won't be able to do this alone. No amount of following our bliss or citing examples of accomplished older workers will create the structures that we need to support encore careers. As with all social movements, we'll need new institutions, new laws and new ideals to push things forward.

What kind of social architecture do we need to foster encore careers? Mr. Freedman invites suggestions, but offers a few of his own:

  • Re-write the Social Security system to allow people to tap their benefits before retirement age to fund their education and career transitions.
  • Fund a volunteer work program modeled on the Peace Corps to redirect the experience of older workers to social problems while allowing them to explore new types of work.
  • Create the equivalent of a GI Bill for older workers to help cover education costs.
  • Institute a "gap year" for older workers to allow them time to reflect on what to do next.

None of this will absolve individuals from having to live within their means and save part of what they earn today for tomorrow. But work itself, rather than just investment accounts, will be the centerpiece of the new system.

It's easy to see how some of these ideas will be too impractical or politically untenable to succeed. But if the goal of finding meaningful, remunerative work after the age of fifty becomes a social norm, employers will likely find ways to support it in order to remain competitive.

In fact, companies are already rewriting their HR policies to accommodate talented workers who can't meet the standard forty-hour workweek, itself a recent social artifact. The consulting firm Deloitte created its Mass Career Customization program to allow employees to dial up or down their careers and work hours depending on life circumstances. IBM created its Transition to Teaching program to help employees move to jobs as math and science teachers and, as Freedman notes, later expanded the program to include government and non-profit jobs.

Allowing workers to set their own hours, providing unlimited vacation time, and other flexible HR policies are replacing the more rigid, hierarchical "factory structures" of the past. It's not a stretch to see companies adopting "encore-career policies" to help create the next-generation retirement model.

Extending our working lives in meaningful ways is worth a try. Marrying human capital with financial capital has always been a road to financial security. Even a small amount of part-time employment income during retirement can make a huge difference in a long-term financial plan.

There are non-financial benefits as well – the social connections that work fosters, the sense of purpose, and the improved health that researchers are documenting as we speak. How many people will still try to "tough it out" in a job they hate if there are opportunities to retool for a more satisfying career?

There are, of course, challenges to creating a new social order for life after fifty. The Golden Years had the backing of real-estate developers, leisure companies, and the financial-services industry. What does the "encore" model have? It has the boomers.

This is their chance to shine and leave the world a better place for the generations who come after ideals to which they've always subscribed. The last act of the baby boomers remains to be written and is full of uncertainty. But the odds are high that it can be a very good one, for all of us.

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BFA Media Quotes
NBC Bay Area, March 20, 2013
Milo was interviewed by NBC television reporter Sam Brock for his "Reality Check" program in a segment entitled, "Retire in the Bay Area? Study Says It's a Bad Idea." Milo made a number of observations, among them that the retirement decision is very case-specific and that many people living in the Bay Area enjoy higher incomes that help offset the higher cost of living. For these people, retirement here may well be a reasonable option, with all the lifestyle benefits the area has to offer.

There is a transcript below the video in case it won't play in your browser. You might also try playing some other NBC videos first to see if that will help. See the video and read the article.

Thank you for reading. Please look for our next newsletter in May.

Best regards,

Milo Benningfield

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