The New Social Contract: a blueprint for retirement in the 21st century

The New Social Contract: a blueprint for retirement in the 21st century

The seventh annual Aegon Retirement Readiness Survey reveals that half of today’s workers and retirees believe that future generations will be worse off in retirement than those today.

With retirement for many people now lasting 20 years or more, this year's survey not only examines how prepared people are for retirement, but also draws a number of findings and recommends a New Social Contract for retirement.

'Retirement readiness' remains a big concern

In 2018, the Aegon Retirement Readiness Index (ARRI) score, which measures 'readiness' for retirement based on answers to questions that examine an individual's attitudes and readiness for retirement, was 5.9. This is only a slight increase on the 5.2 achieved in 2012, underlining how much work needs to be done. 

"In a world where 49% of people believe that future generations will be worse off than those today, there is a compelling case for a new social contract that leaves no one behind." Mike Mansfield - Manager Retirement Research, Aegon. 

PDFs of the the full report in English, Japanese and Portuguese are available for download in the right-hand side block. You can also download country reports for Hungary and the United States (in English), and Japan (In Japanese).  

Key Findings

In 1950, when many of the current social security systems around the world were being designed, the world population over the age 60 was 205 million. By 2050, that figure is projected to reach 2.1 billion, a more than 10-fold increase.

Megatrends such as population aging, together with new technology and more flexible labor markets, are all having a significant impact on retirement – something that is recognized by some but not all workers.

Globally, the most frequently cited megatrend impacting people's plans for retirement is the reduction in government benefits (38 percent) followed by increased life expectancy (27 percent) and then volatility in financial markets (24 percent).

Of concern is that relatively few survey respondents acknowledge any megatrends as impacting their retirement planning, especially megatrends relating to employment trends, technology and the financial markets.

Today's generation of workers is losing faith in the current retirement systems, with almost half of those surveyed (49 percent) believing that future generations of retirees will be worse off in retirement.

Only seven percent of workers and retirees feel that their government should do nothing to address the cost of social security, believing it will remain perfectly affordable in the future.

While employer-sponsored retirement benefits are vital to help people prepare financially for retirement, only 43 percent of workers globally say their employer offers a retirement plan that includes an employer contribution.

Just 39 percent of workers globally are 'habitual savers' who always make sure they are saving for retirement.

Although the social contract may be in jeopardy, people nevertheless have a positive mindset about retiring.

Fifty-seven percent of workers envision some form of transition to retirement in which they continue working as they currently are or work part-time for a while or during their retirement. Most are planning to do so because they both want and/or need to work. Earning an income later in life provides workers with the opportunity to continue saving and delay drawing down their retirement benefits and savings.

Globally, workers expect they will need 68 percent of their current annual income in retirement. Alarmingly, only a quarter (25 percent) think they will achieve this retirement income and a further 13 percent feel they will achieve around 75 percent of their required income.

Only 13 percent of workers have a written retirement plan while 44 percent say they have a plan, but that it is not written down. Only 32 percent of workers have a backup plan if they are unable to continue working before their planned retirement age.

Saving, investing, and planning for retirement can be an exercise in futility if an individual lacks the know-how that is required to be successful. While many people may not have the desire or wherewithal to become retirement experts themselves, they must be able to recognize and rely on sound advice.

Key to having a meaningful discussion with an advisor and having the confidence to make an informed decision is a baseline level of financial literacy, which unfortunately is lacking among people preparing for retirement.

Only 30 percent were able to answer correctly the 'Big Three' financial literacy questions developed by Drs. Annamaria Lusardi and Olivia S. Mitchell, which are designed to test an understanding of compound interest, the impact of inflation, and risk diversification. The 'Big Three' financial literacy questions are used in the survey with permission by Lusardi and Mitchell. Please note that they were not involved in the research.

Some of the most frequently cited concerns about retirement relate to health issues. The quality of an individual's health can have a tangible impact in retirement both in terms of when people retire and how long they expect to live in retirement. In addition, many also worry about the affordability of healthcare costs and are not factoring these costs into their retirement plans.

Nearly half of people surveyed (49 percent) said that declining health was a retirement concern, with a third citing not be able to stay active and developing Alzheimer's as specific concerns (34 percent and 33 percent respectively).

Thirty-nine percent of retirees in the 15 survey countries retired sooner than they had planned and the largest single reason for doing so was their own ill-health (30 percent). Workers preparing for retirement who are in poor health expect to live six years less in retirement than those who are in excellent health (14 years compared to 20 years).

Only 21 percent of people are confident that their own healthcare will be affordable in retirement, yet just 45 percent of people say that have considered the cost of healthcare as part of their retirement savings needs.

Health has emerged as the new frontier in retirement security. The miracles of modern science and improvements in nutrition in recent decades have made longer life expectancy the norm rather than the exception. Inspiring people to make the link between health, wealth and well-being in old age is critical to ensure future retirement preparedness.

While most people consider themselves to be in 'good' or 'excellent' health today, that is unlikely to remain the case for the rest of their lives and many fail to act on that knowledge by taking the necessary steps to maintain good health.

There is a clear correlation between workers who take steps to maintain good health and how prepared they feel for retirement. Indeed, those who engage in five healthy behaviors identified in the survey have a significantly higher 'retirement readiness score' (7.4) than those who do not (4.6).

One of the key findings in this year's survey is the clear desire that many people have to stay in their own home in retirement, with 70 percent saying that this is either 'extremely' or 'very' important to them.

Making this possible could involve relatively minor home modifications to help people live independently. The most commonly cited feature or device to achieve this is bathroom modifications (43 percent) followed by home security systems (39 percent) and age-friendly furniture and panic buttons to call emergency services (both 37 percent).

How can we apply the lessons from the current social contract and forge a new social contract that is sustainable, resilient, and adaptable to our changing times?

The nine essential design features of the new social contract are

1. Sustainable social security benefits that serve as a meaningful source of guaranteed retirement income and avoid risk of poverty among retirees.

2. Universal access to retirement savings arrangements for employed workers and alternative arrangements for the self-employed

and those who are not employed due to parenting, caregiving, or other responsibilities.

3. Automatic savings and other applications of behavioral economics that make it easier and more convenient for people to save and invest.

4. Guaranteed lifetime income solutions in addition to social security benefits. Education for individuals to strategically plan how to manage their savings to avoid running out of money, including a knowledge of the options to help them do so. Governments, employers and others should increase awareness of, and encourage individuals to take advantage of, opportunities to have a portion of their retirement savings distributed in the form of guaranteed income, such as an annuity.

5. Financial education and literacy so individuals understand basic concepts and retirement-related products and services. Individuals must be able to ask good questions and make informed decisions. Financial literacy must be integrated into educational curriculums so that young people learn the basics of budgeting, investing and managing their savings – skills that can serve them well for the rest of their lives.

6. Lifelong learning, longer working lives and flexible retirement to help people to stay economically active longer and transition into retirement on their own terms -- with adequate financial protections if they are no longer able to work.

7. Accessible and affordable healthcare to promote healthy aging. Governments play a vital role in sponsoring and/or overseeing healthcare systems. Employers should provide healthy work environments and consider offering workplace wellness programs.

8. A positive view of aging that celebrates the value of older individuals and takes full advantage of the gift of longevity.

9. An age-friendly world in which people can "age in place" in their own homes and live in vibrant communities designed for people of all ages to promote vitality and economic growth.


How many people have a written plan for their retirement?

We went on the streets of Amsterdam to find out what people know about retirement.

The Aegon Retirement Readiness Survey was produced by The Aegon Center for Longevity and Retirement (ACLR), in collaboration with nonprofits the Transamerica Center for Retirement Studies, which is based in the US) and Instituto de Longevidade Mongeral Aegon, which is based in Brazil.

ACLR's mission is to conduct research, educate the public, and inform a global dialogue on trends, issues, and opportunities surrounding longevity, population aging, and retirement security.

Over the last seven years over 100,000 workers and retired people around the world have been asked to share their views about retirement and inform debates about helping people prepare for the future. This year's report was based on the contributions from 14,400 workers and 1,600 retired people in 15 countries: Australia, Brazil, Canada, China, France, Germany, Hungary, India, Japan, the Netherlands, Poland, Spain, Turkey, the UK, and the US.