The 100-Year Life: Living and working in an age of longevity by Gratton Lynda & Scott Andrew

Author:Gratton, Lynda & Scott, Andrew [Gratton, Lynda]
Language: eng
Format: azw
Publisher: Bloomsbury Publishing
Published: 2016-06-01T16:00:00+00:00

Chapter 7

Money

Financing a long life

It is no surprise that many people see the financing of a long life as a curse. There are many aspects of long-term financial planning that can be unpleasant and unrewarding. It is complicated, requires self-knowledge, involves tackling difficult questions, and needs some insight about future needs and aspirations. Without knowing what you want and having an idea of a life plan, it’s hard to calculate long-term finances. Added to this, the terminology of financial planning is difficult, with concepts such as geometric progressions and compound interest.

There is also the question of reward. Basically, preparing for the future means transferring money from today to the future, and most people find it tough to create a close connection between their current and future selves.

So it’s no surprise that financial planning causes great anxiety. But these issues have to be tackled head-on. Those who don’t consider their future life, aren’t able to make the complicated calculations, fail to understand the technical terms, or don’t take full account of their future self run the risk of entering old age with insufficient resources. Alternatively they could find themselves in mid-life without the savings they need to take a career break to re-skill. It is no surprise that a recent survey of retirees found that 70 per cent wished they had saved more.1

Making the most of a 100-year life involves restructuring the decades by moving away from a three-stage life and shifting the way in which intangible assets are managed. However, while important, none of those changes will of themselves solve the financial problem we identified back in Chapter 2 – a long life simply requires everyone to work longer and save more.

Therefore, we return once more to the subject of finances and draw from both the economics and psychology literatures to focus on the rational and behavioural aspects of financing a long life. We revisit two concepts we discussed in relation to transformational assets: the importance of efficacy (‘I believe I am competent to perform this behaviour’) and agency (‘I have the self-control and will to make this happen’).

Appropriate financial planning depends on both. On efficacy in the sense of realism in creating financial plans, and self-knowledge in understanding aspects such as a general appetite for saving. Efficacy requires answering questions like: ‘How much do I need to live on?’, ‘How long do I want to work for?’, ‘What is my knowledge of my financial situation?’ and ‘How financially literate am I?’ Financial planning also depends on taking action that is determined by agency – having the self-control to act on this knowledge and thereby balancing current needs with future needs. The question is: ‘Would my 70- or 80-year-old self approve of the decisions I am taking today?’

Making the numbers add up

In our analysis of Jimmy’s finances, we calculated that he had to save 17 per cent of his income every year of his working life if he wanted to retire on a 50 per cent pension at the age of 65.

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