The Psychology of Retirement

 

These days the line between work and retirement is increasingly difficult to define. How, when and in what manner it occurs is less certain than in the past. Its very meaning has changed with many people continuing to work even though they claim to have ‘retired’.

And, despite its inevitability in one form or another, many individuals still fail to plan adequately for its arrival. For example, a new report from financial services company MGM Advantage claims that “three in five (60%) over 55s admit to being unprepared for retirement”.

Thus the relevance to those interested in older workers of a valuable and interesting new book: The Psychology of Retirement – coping with the transition from work*. It is written by Derek Milne who retired as the Director of the Newcastle University Doctorate in Clinical Psychology training programme in 2012.

Unlike most other guides to retirement which tend to deal with the practicalities of growing older outside of full-time work, this enlightening handbook tackles the unspoken issue that many people find the transition to a happy and fulfilling retirement difficult and stressful.

In response, the book draws on proven psychological coping strategies to aid the process of coping with retirement, ensuring that individuals are able to gain a better understanding of the realities of retirement and maximize their enjoyment of a key period of life.

Incorporating the author’s personal experience, real-life case studies, the latest research and well-established theories, The Psychology of Retirement provides many insights and much food for thought concerning the nature of retirement and the new challenges and opportunities it represents.

* published by Wiley (February 2013).

MGM’s Retirement Nation Report 2012: http://www.mgmadvantage.co.uk/island/wp-content/uploads/2012/11/Retirement-Nation-2012.pdf

The flat rate pension finally arrives.

At long last, and after many years of stalling, we are now close to having a flat rate, single tier state pension system. There has obviously been much coverage in the media and from various charity and support groups.

On the plus side they have highlighted how this will simplify an antiquated and largely unintelligible system so complicated and intrusive that many potential beneficiaries have chosen not to claim what they are entitled to. They have also drawn our attention to the transitional arrangements which are necessary and in which some people will appear to be winners and some losers (against expectations rather than against fact?). This is fine and necessary to make sure that in the changeover process all obvious inequities are dealt with and corrected.

As with all political initiatives such as this, first we get the good news regarding the move to a flat rate pension and then the not-so-good news that National Insurance contributions will have to increase to fund some of it. This does rather take the icing off the cake.

More worrying, though, are the views, already being expressed, that firstly the state pension is not enough (which we know or should do) and, linked to this, that not everyone should get this flat rate pension, that is a return to means testing. I had thought that for once, at long last, people had started to look at our demographic shift and its implications in a more statesmanlike fashion devoid of entrenched short term party politics – but it seems this is a very optimistic hope.

Such views totally miss the long term point of the changes. The flat rate state pension will never be enough on its own unless we tax people out of existence. However, by underpinning personal savings with this pension and then not confiscating it once individuals start to save for themselves we can give people the responsibility, the scope and the encouragement to plan themselves for their own financial well-being according to their own needs, choices and timeframes. And in what manner they choose, be it pensions, properties or direct investment.

Dealing with the reality of living for a hundred years

A new report from Scottish Widows predicts that a third of babies born today will live to be 100 and, as a norm, will work until the age of 70. Girls are more likely to reach this age – 39 per cent – compared to boys (32 per cent).

There’s something of a fairy-tale quality about the phrase “living for a hundred years” and thinking about the implications shows that a good fairy with a magic wand might be required for ensuring a long and happy life for today’s babies who are going to experience such longevity.

The report anticipates that as people face the challenge of saving for their first home and paying off student loans (which at around £73,000 will take until average age 52), ‘an increasing proportion will either have no children or just one child’.  

They will also need to find money to save for a pension and to continue to work longer in some capacity in order to fund living comfortably for the longest anticipated retirements in history – up to three decades.

Naturally (as it comes from a financial products provider) the report’s main message is that these ‘new centenarians’ will need to start saving at the age of 25 to build up a decent pension to have any chance of being able to retire comfortably.

However, surely it is simplistic to think that this will be sufficient to deal with a change of such magnitude? It seems to me that innovation will be required in a number of areas, including:

·  Housing – in terms of both assisting younger people to get on the housing   ladder, and more flexible options for helping older people free up housing equity.

·  Education – a review of our current ‘university education at any cost’ culture and a greater emphasis on life-long learning

·  Working patterns – making part-time, flexible and contract roles throughout the career-span the norm, thereby enabling people to dip in and out of the workplace more easily – and to extend their working lives.

·  Spending patterns – a review of priorities e.g. although divorce rates remain high it is predicted that young centenarians will spend around £39,000 on their wedding (compared to their grandparents average of£4,400)!

· Attitudes to healthy living – to ensure that those later years are spent in some kind of good, or at least moderate, health.

Commenting on the report, leading economist and trend forecaster Steve Lucas of Development Economics suggests that today’s parents “should encourage their children to start understanding finance and stress the importance of saving from a young age”.

This sounds a worthy strategy but might it be undermined by the reality of today’s parents neither understanding financial matters sufficiently themselves, nor having the ability and/or will to save for their own old age?http://reference.scottishwidows.co.uk/docs/2012_11_new_centenarians.pdf

However, before anyone becomes too smug or complacent, other indications suggest that the pensions industry is already planning for anticipated life spans of 125 years!

No one ever expected the Spanish Inquisition, either

New research from Age UK Enterprises shows that apparently (surprise!) the majority of over 60s (74%) have made exciting plans for their retirement,from extended overseas holidays (26%), to home refurbishments (20%). However that optimism is countered by a lack of confidence in how far their money will stretch – with over a quarter of respondents (29%) feeling uncertain or negative about their current financial situation.

They state: “With tumbling annuity rates and poor returns on savings, securing a comfortable retirement has become an ever more challenging task. More than a quarter (27%) of those who feel uncertain or negative about their current financial situation feel that the financial crisis has heavily impacted on their financial plans for retirement, while more than one in four (29%) stated they didn’t earn enough money throughout their career to save for later life. However, the majority (81%) of those who are pessimistic about their finances believe that they didn’t spend enough time planning for retirement.”

The research findings in themselves hardly tell us anything new. In the current economic climate retirement planning is a bit like writing your Christmas list when you’re a child; you know what you’d love to have but you also realise that you’re unlikely to get it – certainly not everything, anyway.

However, the findings also highlight a glaring dilemma in mentioning “tumbling annuity rates and poor returns on savings”. This being the case, even those who have ‘planned’ and put more money into pensions and savings will hardly be dancing with delight.

Overall, this news item only adds fuel to the argument that says we need to stop thinking of retirement savings purely in terms of pensions and current accounts and start thinking more creatively. Also older people need the option of continuing to work longer on a part-time basis rather than expecting a period of full-time retirement that currently may last several decades.

…What was that saying about not being able to solve a problem using the same thinking that created it?

Age UK calls for an automatic right to work flexibly

Every worker should be able to do their job flexibly unless a business can justify otherwise, according to a new Age UK report, A Means to Many Ends.

Flexible working practices include working from home, doing flexitime or different working hours, or simply being able to swap shifts.

Age UK believes that an important way to unleash the full potential of Britain’s older workers, many of whom are unable to work conventional hours because of caring responsibilities and the need to balance other personal issues with work, is to change the UK’s traditional and more rigid approach to work

These changes, the charity says, would enable older people to use their years of experience to contribute to the economy and extend their working lives. This would also de-stigmatise flexible working and encourage employers to examine how the practice could benefit their organisation.

Age UK’s Charity Director General, Michelle Mitchell said, ‘With their skills and knowledge, older workers are an invaluable asset to the UK economy. Yet, far too many people aged 50 and over are locked out of the job market because they are unable to work conventional hours, often because they have to care for a relative or have health issues.’

‘In these tough economic times when the UK needs to make the most of its resources, it is just common sense for the Government and employers to embrace flexible working.’

According to Age UK’s report, there are currently nearly 900,000 people in the UK working past the age of 64 and nearly 8 million people aged 50-64 who are economically active. But a further 735,000 people aged 50 and over want to work but are economically inactive. Factors including the UK’s ageing population, rising State Pension age and poor private pension return, mean in the future this number is likely to get even bigger.

The report’s recommendations seem sensible, yet overlook the practicalities of how difficult it can be for smaller employers to accommodate flexible working. Also, it fails to place sufficient emphasis on the fact that a desire to work flexibly in later life is by no means solely related to need. Many older people simply want to work flexibly rather than continuing the full-time grind, and could be tempted to remain economically active or to return to the workplace if more flexible working options were available in jobs other than retail and similar industries.

The report is available at: http://www.ageuk.org.uk/latest-news/age-uk-calls-for-automatic-right-to-work-flexibly/

Hands up who wants a Minister for Retirement

In the past there have been various calls for a Minister for Older People or similar to focus on issues such as the provision of care for the elderly. Now retirement income specialists Primetime Retirement are calling for a Minister for Retirement to focus on retirement and pre-retirement issues

In research undertaken with a representative sample of 389 over-55s they found that 64% would support the idea with another 11% unsure.

Primetime Retirement believes that this strong backing for the new Government role reflects a growing realisation that the whole concept of retirement is changing – requiring  new solutions from both Government and the private sector and generating a demand for innovation and leadership as the country grapples with the changing retirement issues.

“Of course appointing a Minister won’t solve all the issues but it would help focus the Government and other stakeholders on the need for more options in the retirement income debate,” their spokesman said

Would it? Really? And if such a person were to be appointed, who would it be, with what skills and serving whose interests?

Good and bad news about retirement funding

New research from international investment management firm, Baring Asset Management (Barings) shows that nearly half (15.7 million aged over 18) of people do not currently expect to use a pension to fund their retirement. The findings are part of an annual research program Barings undertakes looking at pensions planning and how people are preparing for retirement

The research shows that many people are relying on property, cash and even an inheritance to fund their retirement.   The number of people expecting that cash will form part of their retirement planning increased from 26% in the last survey in 2011 to 29% this time (some 10.5 million people).  The number that selected property as forming part of their retirement fund also increased two percentage points to 29%, equating to some 300,000 more people.

Even more surprising is that 17% of people, or six million in the UK, said they expect inheritance to help fund their retirement.  However, with the average UK inheritance estimated at around £45,000 per person, many people may be overestimating the role inherited assets may play in helping fund a retirement.

The study also found that one in four (25%) – 8.8 million people – admit they simply don’t know how they will fund their retirement.

These findings are good news in as much as they demonstrate that public trust in pensions is no longer a given and that people are considering other sources of funding – providing a challenge to the complacency of the existing pensions industry. However, they are bad news in terms of demonstrating many people’s continuing lack of preparedness for what is likely to be a long, unwaged and potentially impoverished period of life.

64% of businesses fail to provide retirement support

Most older employees are on their own when it comes to making decisions about retirement and working options in later life. According to a new report only 36% of employers provide their workers with guidance in the run-up to retirement.

In addition to this, the latest Real Retirement Report from Aviva found that today’s over-55s have typically been with their last employer for 16 years (around a third of their working life), and 56% of employers have spent money on providing work place benefits such as pensions, private medical insurance, and annual bonus.  However, the investment stops there. The majority of employers let their older employees drift away at retirement without providing any advice or support.

As the Aviva press release points out, this lack of guidance not only highlights a lack of commitment to employees but is also likely to lead to a loss of vital skills from older employees.  Almost a third (32%) of those who qualify for the state pension are still looking to work – at least on a part-time basis – so by engaging with an employee’s retirement planning a business may be able to keep their valuable employees for longer.

The report also revealed that the vast majority of employees aged over 55 who have received support from their employer welcomed it, with 70% saying they found it useful. The most useful types of retirement support according to employees are workshops on retirement finances (35%) and written literature on retirement finances (35%). 

Now the legislation relating to retirement has changed, part of the skill of managing older workers, ensuring their engagement and commitment, and supporting them into retirement comes down to open communication with them about their aspirations and plans. Formal retirement planning courses provide an ideal forum for both older people and their employers to focus on the options appropriate to their own workplace.

http://www.aviva.co.uk/media-centre/story/16967/older-workers-urge-employers-to-provide-more-suppo/

Deciding when to retire

Today, when standard mandatory retirement ages are a thing of the past, it is more important than ever for employers to understand some of the factors underpinning the retirement decision. For example, the timing of retirement where one of the key myths is that a person’s retirement date will depend largely on when their partner decides to retire, particularly in the case of women.

However, as a recent article in the Wall Street Journal indicated, the days when a husband automatically retired at 65 with a corporate pension and his wife dutifully followed him, are over. Most women approaching retirement age are now working, and many have their own retirement savings and viewpoints about the nature and timing of retirement.

Many of today’s older women entered (or re-entered) the workforce later than their partners following a period of non-work or part-time working while they raised their children. Consequently they may be at their peak with prospects ahead of them when men slow down and want out.

Add to this the fact that retirement, particularly for women, who tend to live longer, can now last for up to thirty years or so and women may look with horror at the prospect of relinquishing an income, social relationships and recognition for many potentially unfulfilling years ahead.

Of course, it’s not all bad news; many people – female and male – have very positive retirement plans. But, as the article indicates and my own experience with coaching and advising older people bears out, many individuals simply don’t talk to each other in any meaningful way about retirement beyond a shared acknowledgement that it will be good to leave the rat race behind.

Employers can help in many ways, not least through providing meaningful, couple-centred later life planning programmes and coaching. That may sound overly altruistic and unrealistic in this economic climate but, if employers want to see their older workers making positive transitions into retirement and being clear and open about their future plans, something has to change.

See the WSJ article at:

http://online.wsj.com/article/SB10001424052970204571404577255662010466038.html?KEYWORDS=retire

Time to get real about retirement

A press release which recently arrived in my inbox highlighted that millions of Brits are dreaming of a retirement they may never get to experience.  

Research with 2000 British adults conducted by Benenden Healthcare, a mutual healthcare society, found that most Brits have an idealistic vision of their golden years where they’ll enjoy glorious sandy beaches, rounds of golf, and glamorous city breaks on at least four holidays abroad a year.

The study determined how people expect their retirement to be, before measuring those expectations against results of those already retired. It found dreams of an ideal retirement have convinced 30 per cent of Brits that their standard of living will improve dramatically once they’re able to retire.

The ‘ideal retirement v real retirement’ report found that along with golf club memberships and exotic breaks people are also dreaming of countryside walks, regular spa visits and new cars. But in reality, just one in ten are saving enough cash to support a comfortable retirement with the reality for many being that retirement will be just as much a struggle as our working years – if not more so.

Despite the majority of those interviewed expecting a comfy and relaxing retirement, 45 per cent admitted they thought they weren’t saving enough for the future with, remarkably, a fifth saving nothing at all. Indeed, three in ten people confessed to a ‘live for the now’ approach to money, with little thought given to their pension or later years because ‘there’s plenty of time yet.’

But people currently in retirement were less carefree in their assessment of retired life – less than a third said they can afford the holidays abroad that were a key feature of the ideal later life.

Lack of time, money and health issues are also preventing retired people from carrying out what they want to do. Furthermore, 35 per cent claim that retirement has seen their standard of living decrease notably and a tenth said retired life was not at all like they’d pictured it would be.

While none of this is surprising in relation to our knowledge about the reality of retirement today it does underline how little this appears to be impacting younger people’s attitudes and beliefs about later life. At a time when we are also considering our attitudes towards and treatment of older people, which in general is abysmal, it’s time that people got real about facing up to some of the horrors that might come their way.

 

 

 

 

SOS – Financial education needed in the workplace

A recent joint report by the National Association of Pension Funds (NAPF) and the Pensions Institute (PI) at Cass Business School has found that half a million people retiring each year are being dramatically short-changed in terms of their total future pension income because of overwhelming obstacles that prevent them getting the best deal.

When they retire, people in the private sector saving in a ‘defined contribution’ pension – now the most common form of company pension scheme – use their pension pot to buy an annuity from an insurer. This gives them a regular income and is a one-off, irreversible decision that sets the size of their pension for the rest of their life.

According to the report, fewer than one in five people have the financial know-how needed to pick the right annuity at the best price. The rest lack sufficient understanding of factors like interest rates, inflation and longevity, and need some form of advice. And those savvy enough to ‘shop around’ for the best rate struggle to do so because the best shops are not signposted. It is virtually impossible to find a specialist adviser who covers the whole market and who is willing to help those with smaller funds.

The report also uncovered evidence of sharp practice and murky pricing in the annuity market, putting unsuspecting consumers at a huge disadvantage.

David Blake, director of the Pensions Institute at Cass Business School comments: “This report is a wake-up call to the pensions industry, the government and the regulators. If the annuity system is not radically overhauled, employees in defined contribution schemes in the private sector will continue to suffer massive detriment and the government’s new auto-enrolment regime will fail the very people it aims to help secure financial independence in retirement.”

However, more immediately it concluded that people get “too little support” from employers or providers when making a decision about their annuity – often they get nothing more than a leaflet pointing them to a website with a postcode-based search engine.

As ever, the workplace is the best place for providing education and knowledge – whether related to pensions, annnuities, general financial planning, health, or myriad other topics. Good employers will hopefully rise to the challenge in supporting their employees to reap the best rewards from a system that most have paid into with the best intentions and trust in future rewards.

And for those who are younger, financial education is definitely needed about the options available, aside from pensions and annuities, to provide for future financial needs and retirement.

For more: 

http://www.napf.co.uk/PressCentre/Press_releases/0176_Savers_left_short_changed_and_bewildered_by_unfair_annuities_system.aspx

“The Third Way” – now I understand it

After many years of listening to the soundbites and wondering what precisely “The Third Way” was I think that I am beginning to understand.

A number of surveys and pieces of research have come out this month, notably from Prudential and from LV=, which by coincidence have led to headlines all revolving around a third.

Here are a few to whet your appetite.

“One in three workers are without a pension

One in three workers in the UK does not have a private or company pension, meaning that around 15 million will have to rely on the state pension or personal savings when they retire, according to stark new research.”

And another

“A third of Britons stop pension payments

A third of working adults have stopped paying into their pension schemes as they can no longer afford to, according to new research.“

And another

“Home is pension for a third of retirees despite falling house prices

Rise of the HIPpies (‘Home is Pension’) generation: two million over-50s are planning to use equity in their property to help fund their retirement^“

 

So this is the legacy that people are now having to deal with – pretty worrying really.

And why a third? Well obviously the numbers all came in at around that level. But what makes it such an intriguing headline? I suggest that, while stopping just short of apocalypse and complete meltdown, it is still a pretty horrifying number.