Working Past 65 Redefines Portfolios and Retirement

Joseph B. Fuller, a professor of management practice at Harvard Business School, anticipates that both employees and employers will share a common goal of embracing some type of employment for older workers.

“It’s very, very clear that we’re going to see an increase in the average working age,” says Fuller, who co-leads the school’s Managing the Future of Work project. “A major driver of it will be economic anxiety.”

Institutions that provide pension and retirement plans for their employees are already starting to rethink their offerings, with portfolio construction keeping an eye toward retirement sufficiency and security over periods that often include greater longevity. Within 401(k) plans, John Lowell, a partner with October Three Consulting based in Woodstock, Georgia, sees the addition of annuities and income products as part of the solution for some plan participants. But more broadly, he sees increased interest in the potential that market-return cash balance pension plans might provide, where individuals have an account that looks like a 401(k) account that can be converted to lifetime income.

“There is certainly a need for people to have the opportunity to generate lifetime income, particularly as lifetimes are getting longer,” he says. “It’s one of the places where as a country right now, we’re falling very short.”

The convergence of demographic and economic pressures is likely to squeeze both businesses and households as a surge of Baby Boomers hits the traditional retirement age of 65. More than four million Americans are projected to reach that milestone each year through 2027, according to the Alliance for Lifetime Income’s Retirement Income Institute. Yet many individuals feel unprepared. Reports show ongoing concern about a lack of savings with 66% of those turning 65 “worried about having enough money for retirement,” according to a recent survey sponsored by the Alliance.

These financial realities may unite employers and employees in a common goal of finding ways to keep older workers on the job longer, Fuller expects. But the future of what work might become for older employees may look different than it does today. He pictures companies creating flexible hours and schedules and new programs that lean on pairing experienced employees with younger ones, he says. Fuller also sees a promising future for generative artificial intelligence to help support older workers, pointing to current research  that shows a marked performance improvement when subpar employees are aided by generative AI and expects a similar gain could occur with older workers, he says.

Fuller also sees how reducing payroll taxes for workers over 65 years of age could encourage retired workers to return to some degree of employment and earning, helping ease pressures on social safety nets including Social Security. “The government should be hugely interested in getting people to defer retirement,” he says.

Insufficient savings for many Americans is a concern shared by Hal Hershfield, a professor of marketing and behavioral decision-making at UCLA’s Anderson School of Management.

“It may be outdated to expect that we can have a fully funded retirement for 30 something years while saving a minimal amount during our working years,” according Hershfield, in an interview conducted by email. “A more realistic picture of retirement may include working longer or working in some part-time way during what might be thought of as typical retirement years.”

At the same time, improving retirement plan design could also lead to more robust savings. Hershfield expects the need for even more widespread use of employer nudges, such as automatic enrollment and automatic escalation in retirement savings. He also recommends that companies help their workers reframe their retirement savings into smaller sums, including by linking savings to “temporal” amounts, such as dollars per day rather than dollars per month. Another technique that shows promise is adopting exercises like visualizations, that help workers connect to their future selves, “to help workers who want to save more, actually follow through,” he adds.

The longevity puzzle is yet another challenge individuals face today with many advisers and retirement planning programs running investment scenarios projecting a life expectancy of 100.

“The most important insurance we need is for living too long,” says Dan Ariely, a professor of psychology and behavioral economics at Duke University.

With increased longevity, the financial logic for companies to continue with defined benefit plans decreased, he says. Yet the stakes are high for most individuals who do not know if they need savings to support 30 years in retirement or for just a few years. Ariely sees a combination of several efforts as potentially helping ease this burden.

“As a country, we need to realize this is a very important thing and we need to create better retirement products—something like annuities but less expensive,” he says, adding that government backing could play a role, along with other innovations, in the retirement product space.

Individuals have a role to play, too, with people needing to “change dramatically how we think about saving for retirement and how much we spend,” Ariely says. Banks also can assist with helping people save automatically from their paychecks. And from a family and societal perspective, Ariely sees a benefit from fostering more inter-generational family connections. In instances where more grandparents are involved in their grandchildren’s child care, those children, when older, will be more likely to reciprocate with elder care for those same relatives at older ages.

“We need to do things on the personal front,” he says. “We need to start opening more savings accounts, we need to change the limits of 401(k)s or create additional alternative investments, and we need to improve the market for longevity insurance.”

Related Stories:

The Longevity Question

Maybe Baby Boomers Won’t Tank the Stock Market by Cashing Out