Aegon Retirement Readiness Survey 2019: empowering individuals in a transitioning world

The New Social Contract: Empowering individuals in a transitioning world

The eighth annual Aegon Retirement Readiness Survey focuses on the need for collective action by individuals, governments and employers to forge a new social contract for retirement.

Globally, increasing longevity has gifted humanity with an extended period of life, which presents people with the opportunity to redefine their working years and time spent in retirement.

Enjoying this gift of extra time requires fundamentally changing how people retire. It involves the need for people to remain in paid employment longer, stay physically and mentally active, maintain good health, and have the ability to remain in their own home and communities throughout their lives.

Safeguarding wealth and health 

Declining health in older age can frustrate even the best laid plans, so it is important to factor health issues into retirement planning. The two most often cited retirement concerns among people globally are declining physical health (50 percent) and running out of money (40 percent), according to findings from Aegon's research. Faced with these dual concerns, it is crucial that people prepare for all eventualities and develop more holistic plans for retirement.

The report

The New Social Contract: Empowering individuals in a transitioning world is based on the eighth annual Aegon Retirement Readiness survey of 14,400 workers and 1,600 retired people across 15 countries spanning Europe, the Americas, Asia and Australia. It builds on last year's The New Social Contract: A blueprint for retirement in the 21st century which calls for the modernization of existing retirement systems and outlines nine essential design features based on the premise that everyone should have the opportunity to age with dignity.

"As people are living longer than they have in the past, we need to reimagine what retirement means," says Mike Mansfield, Program Director at Aegon Center for Longevity and Retirement. "Our planning must address both our finances and our health so that we can fully enjoy the retirement for which we have worked so hard."

Reimagining the ideal retirement plan

Globally, only 29 percent of workers are extremely or very confident that they will be able to retire in a lifestyle they consider comfortable. Workers expect that they will need to replace 68 percent of their current income in retirement, yet only 25 percent feel they are on track to achieve that level of retirement income. To help address these concerns, The New Social Contract: Empowering individuals in a transitioning world sets forth Five Fundamentals for Retirement Readiness:

The best route to retirement readiness is starting to save as early as possible and becoming a "habitual saver" who always saves for retirement. Only 39 percent of workers globally say they are habitual savers.

Only 16 percent of workers globally have a written plan for retirement. Fewer than half of workers are currently factoring future healthcare expenses into their retirement savings needs

Unforeseen circumstances can have a catastrophic impact on household finances. Globally, only 35 percent of workers have a backup plan to provide an income in the event they are unable to work before they reach their planned retirement age.

Living healthily can help mitigate decline in older age and associated healthcare costs. When asked which healthy behaviors apply to them, people globally most often cite eating healthily and avoiding harmful behaviors (both 60 percent).

People must commit themselves to continuing education to keep their job skills up to date and relevant and to learn how to make informed choices in their retirement planning. Financial literacy is a compelling example of where improvement is needed. The survey found that only 30 percent of people globally could correctly answer all of the "Big Three" financial literacy questions developed by Drs. Annamaria Lusardi and Olivia Mitchell that test knowledge of compounding interest, inflation, and risk diversification.

Envisioning age-friendly communities

Increasing longevity and the gift of extra time require the creation of a new kind of community that better supports people during their working lives and in retirement. The survey finds that:

  • Sixty-one percent of people globally feel that ensuring an affordable cost of living and access to excellent healthcare (59 percent) form the foundation of an age-friendly community.
  • Two-thirds (67 percent) of people globally say that remaining in their own home as they get older is very or extremely important to them.
  • Just one-quarter (26 percent) of workers globally are currently offered the option of moving from full-time to part-time work as an alternative to taking full retirement.

Working towards a new social contract for retirement

Growing concerns about the sustainability of the traditional "three-pillar" social contract for retirement, where governments, employers and individuals each play a role, have resulted in a shift towards greater individual responsibility. Empowering individuals to take greater responsibility for building their wealth and protecting their health should be one of the cornerstones of the new social contract.

The New Social Contract: Empowering individuals in a transitioning world calls for collective action and offers these recommendations for each of the social partners:

Globally, people expect 30 percent of their retirement income to come from their own personal savings and investments and only 23 percent of all survey respondents are confident that healthcare will be affordable in retirement. The things which prevent people from living healthy lives are often the same things which prevent people from building long-term financial plans. Utilizing life events and embracing choice architecture can be effective ways of encouraging people to prepare for their retirement.

Employers are becoming proactive in helping workers with their wider retirement planning. In addition to fulfilling the traditional role of helping workers save for retirement, employers play an important role in providing timely and helpful information, guidance and advice; however, the penetration of these services remains limited with only 20 percent of workers globally saying that they receive an annual retirement plan statement from their employer. The emergence of workplace wellness programs reflects the goals and aspirations of today's workers with 37 percent of workers saying they would be interested in exercise programs if they were offered by their employer.

Governments take center stage in orchestrating their countries' retirement systems. They must continue to play a significant role in providing for income and healthcare in retirement, with policy agendas that ensure security for everyone, especially at-risk segments of the population. Governments also play a significant role as enablers by enacting laws and regulations that pave the way for product and service offerings. Their ability to raise taxes as a way of funding social programs and motivating employers and individuals through tax incentives uniquely positions them as enablers and influencers.

Detailed recommendations can be found in part 5 of the report (link).