## Café Economics: Worry Free Retirement

## Source details

**Canonical URL:** [Café Economics: Worry Free Retirement](https://www.imf.org/en/publications/fandd/issues/2024/09/cafe-economics-worry-free-retirement)

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## Bibliographic details
- Authors: BRUCE EDWARDS
- Published: September 3, 2024

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### Overview
- Olivia S. Mitchell argues that financial planning can take the worry out of extra retirement years as life expectancy increases.
- Interview with Mitchell conducted by F&D contributor Rhoda Metcalfe; article in F&D Magazine by Bruce Edwards, September 2024.
- Mitchell is professor of business economics and executive director of the Pension Research Council at the University of Pennsylvania’s Wharton School and is described as a founder of modern academic pension research.

### Implications of longer lifetimes
- Longer life expectancy creates a “longevity dividend” if accompanied by health improvements, producing “millions more healthy productive person-years.”
- Aging populations (falling fertility and rising longevity) mean societies will have to care for a larger number of frail elderly people.
- Economic consequences highlighted:
  - Social Security, “the first pillar of US retirement security, will run short within 10 years.”
  - Economic growth around the world is likely to slow as older folks start to draw down their assets.
  - The global balance of power may shift from older, richer developed economies toward the emerging world.

### Retirement planning findings from research
- Health and Retirement Study (launched in 1992):
  - Surveys people “aged 50 and over” and follows them “every two years until they pass away.”
  - With respondents’ permission, the study merges Social Security records, benefit records, and medical records into a rich database.
- Key behavioral findings:
  - A significant number of older individuals “never planned for retirement, never saved for retirement,” and were not well versed in their longevity risk (chances of living to 80, 90, 100).
  - People who don’t understand tail risk tend to “not save enough and tend to retire too soon.”

### Changing work and retirement contexts
- Workplace and retirement system changes:
  - Shift away from employer-provided defined-benefit plans and greater worker mobility means individuals are more responsible for retirement planning.
  - COVID and remote work are among factors changing how people work and plan careers.
- Financial products and risks:
  - Concern about young people engaging with cryptocurrency and complex financial products via apps, leading to potential fraud or large losses.
  - Fraud is also “mounting” among the older population.

### Policy and practical recommendations
- Individual-level advice:
  - Adopt Barbara Judge’s mantra: “Work longer, save more, and expect less.”
  - “If you are healthy enough to stay on the job, I’d say keep working as long as you can.”
- Policy and system-level suggestions:
  - Governments should push longevity awareness so people understand how long they might live and the associated tail risks.
  - Encourage saving through incentives and behavioral innovations (example: the UK’s lottery saving system, where “for every pound people deposit in their bank accounts, they earn a lottery ticket for a monthly draw”).
  - Expand financial literacy: in the US, “21 states now mandate financial literacy classes in high school,” which improves planning, budgeting, and saving behavior.
  - Economists should communicate more with policymakers so academic research can inform policy and policymakers’ questions can guide research.

### Notable quotations preserved verbatim
- “Labor is cheaper than capital.”
- “Work longer, save more, and expect less.”
- Description of UK lottery saving: “for every pound people deposit in their bank accounts, they earn a lottery ticket for a monthly draw.”

### Key statistics and dates
- “30 or 40 years ago” (reference to comparison with parents’ generation).
- Social Security projected to run short “within 10 years.”
- Health and Retirement Study launched in “1992.”
- Surveys people “aged 50 and over” and follows them “every two years until they pass away.”
- “21 states” in the US mandate financial literacy classes in high school.

*F&D Magazine; Bruce Edwards; September 2024*

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## Content in this bundle

- **Worry-Free Retirement**
  - [Worry-Free Retirement (Markdown version)](/-/media/files/publications/fandd/article/2024/09/cafe-econ-productivity.pdf.md){rel="alternate" type="text/markdown"}
  - [Worry-Free Retirement (PDF)](/-/media/files/publications/fandd/article/2024/09/cafe-econ-productivity.pdf){rel="external" type="application/pdf"}

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_Source: https://www.imf.org/en/publications/fandd/issues/2024/09/cafe-economics-worry-free-retirement_