The sixth annual Aegon Retirement Readiness Survey confirms that the gap between people’s expectations for retirement and the reality remains stark. What’s more, it illustrates that health and wealth in retirement are closely linked.
In a world in which one in five people can expect to live beyond their 90th birthday, governments in many countries are coming under increasing strain to meet the costs associated with an aging society. Traditional ways of looking at retirement are also changing.
People see retirement as an active stage of life in which they aspire to stay socially connected, involved in their communities, and continue to work in some capacity. These changes open up the possibility for greater dialogue about the two elements necessary to prepare for retirement: wealth and health.
"In retirement, more and more people aspire to stay socially connected, involved in their communities and continue to work in some capacity." Mike Mansfield, Program Director Aegon Center for Longevity and Retirement at Aegon.
The survey finds that workers who are in excellent or good health have a more positive outlook about their future retirement compared with those in fair or poor health. This highlights a disconnect between the concerns people have about their health in older age and their current health-related behaviors.
The survey also finds that improvements in how workers are financially preparing for retirement are slow. The research continues to point to the importance of having a written retirement plan, saving early, and saving habitually.
Retirement can be considered the ultimate intersection of financial security and healthy aging. An enjoyable retirement requires careful financial planning as well as the maintenance of good health. The main conclusion of this report is that financial planning and staying healthy lead to a greater probability of achieving retirement readiness. Individuals, employers, the retirement industry, and governments, all have a role to play in promoting healthy aging and long-term financial security.
The Aegon Retirement Readiness Index (ARRI) measures retirement readiness on a scale of 0 to 10 with scores of 8 or higher considered to be high retirement readiness. Scores of 6 to 7.9 are considered as medium retirement readiness, and scores of less than 6 are considered as low. The ARRI is based on survey responses to six questions related to personal responsibility, awareness, financial understanding, retirement planning, financial preparations, and income replacement.
In 2017, the global ARRI score reached 5.92. While still a "low" level of preparedness, it represents a slight (0.11) improvement since 2016.
For the first time in the survey's six years, just over half of the countries in the survey, eight out of 15, achieved a medium score of 6.0 or higher.
The improvement in the ARRI is due to a combination of factors: People are feeling more prepared for retirement as many economies continue to rebound from the 2008 financial crisis:
- Strong stock market performance in many countries has boosted defined contribution plans that are typically heavily invested in equities;
- Marginal increase in the proportion of workers who say they are "always saving for retirement";
- and Workers feeling more positive about their personal financial outlook.
Retirement has become an active stage of life about which people associate positive ideas. For example, they aspire to stay socially connected, participate in their communities, and remain economically active.
Globally, the majority (72 percent) of people associate positive words with retirement, including leisure (46 percent), freedom (41 percent), and enjoyment (31 percent). People aged 65 and older have more positive associations with retirement than younger people aged 18 to 24.
The two most widely held retirement aspirations among respondents are traveling (62 percent) and spending time with friends and family (57 percent). A noteworthy 26 percent mention some form of paid work as a retirement aspiration
Globally, people expect 46 percent of their retirement income to come from the government, 24 percent from their employer, and 30 percent from their own savings and investments. As funding retirement shifts toward the individual, it becomes increasingly necessary for people to take greater personal responsibility for their long-term financial security.
Starting to save consistently at age 20 can give a boost of up to 64 percent in retirement income compared to starting at age 30. Globally, people start saving for retirement for a range of reasons, some of which are life stage (47 percent) or employment-related (41 percent).
Thirty-nine percent of workers globally describe themselves as habitual savers (i.e., they say they are always saving for retirement). This group has the brightest retirement outlook of the five saving types² and is almost eight times more likely to achieve a high ARRI score than non-savers at the opposite end of the saving spectrum (38 percent compared to five percent).
Only 14 percent of workers have a written strategy for retirement. Those who have such a written retirement strategy are significantly more likely to turn their good intentions into actions. Seventy-four percent say they are always saving for retirement, which is well above those with an unwritten strategy (48 percent) or those with no strategy at all (19 percent).
Globally, only one in three workers has a backup plan in the event they become unable to continue working before reaching their planned retirement age. For those who do, many will rely on assets that may be quickly depleted such as savings, rather than specifically designed insurance products.
Achieving retirement aspirations requires more than saving, investing and planning; it also depends on staying in good health.
Globally, 68 percent of respondents characterize their overall health as good (51 percent) or excellent (16 percent). One-third say their health is only fair (29 percent) or poor (3 percent).
People report having concerns about their health in older age. Forty-three percent say their health is a primary concern and 39 percent say it is a minor concern.
There is a disconnect between concerns about future health and healthy behaviors. For example, only 43 percent of respondents agree with the statement, "I think about my long-term health when making lifestyle choices" and 57 percent saying "I eat healthily."
Workers who are in excellent or good health are taking more positive steps toward – and have a more positive outlook about – their future retirement compared to those in fair or poor health.
Workers in excellent health (78 percent) are more likely to say they are very/somewhat aware of the need to plan financially for retirement compared with workers in poor health (63 percent). They are also seven times more likely to say they are extremely/very confident of achieving a comfortable retirement (49 percent compared with seven percent).
Globally, and among all 15 countries in the survey, workers who consider themselves to be in excellent health have a higher ARRI score than the overall score in their country.
Healthy lifestyles and retirement readiness go hand-in-hand. Workers who engage in multiple healthy activities have a higher retirement readiness score than those who do not.
Many workers now envision fully retiring at an older age. Retirement has become a transition that offers the promise of continued work, albeit at a more relaxed pace, with more time to enjoy life. However, success in achieving this largely depends on workers' health and financial ability
Fifty-seven percent of workers envision continuing some form of work in retirement. This includes working part-time before stopping altogether (31 percent), changing the way they work but continuing to work throughout retirement (16 percent), and those who say it won't make a difference to the way they work (10 percent)
Workers who envision working to some extent in retirement are doing so for financial and healthy aging-related reasons. Globally, 56 percent want to keep active/ keep their brain alert and 38 percent enjoy their work. A net 73 percent cite income and savings-related concerns.
Workers in poor health are more likely to plan to work to age 70 or older, or never retire (23 percent), compared to those in excellent health (17 percent).
The sobering reality for all workers is that 39 percent of the fully retired say they retired sooner than planned. The most frequently cited reasons for doing so are ill-health or employment/job loss (29 percent and 25 percent respectively).
Employers play a significant role in designing a workplace environment that helps to stimulate greater savings, healthier lifestyle choices, and the opportunity for workers to transition to retirement.
A combination of nudges, whereby life stage-driven prompts offered through the workplace provide an opportunity to create a pattern of habitual saving, is critical for helping workers achieve their retirement aspirations.
Automatic enrollment receives a widespread appeal: 66 percent of workers globally find the prospect of being automatically enrolled into their employer retirement plan with a contribution rate of 6 percent of their annual salary to be somewhat/very appealing.
Ninety-one percent of workers say they would be interested in at least one health and wellness program if their employer were to offer it. Even small steps, such as providing healthy food and snacks at the office, are found to be appealing to 42 percent of workers.
Only 24 percent of workers say their employer offers the option to move from full-time to part-time work as a way to help them phase into retirement.
Within the key findings, there are a number of metrics which stood out. We took a closer look at some of these to see what we could learn from them, and have put together a number of best practice case studies.
Individuals are now required to take more personal responsibility in preparing for their retirement largely as a result of demographic and policy changes. Individuals, employers, and governments each have a role to play and a vested interest in helping people achieve retirement readiness by making it easier for people to save for retirement, while adopting and maintaining healthy lifestyles.
See page 37 of the report for detailed recommendations.