YOUR MONEY-Planning for a generation that will live past 100

Thu Jul 25, 2013 11:21am EDT

By Kathleen Kingsbury

BOSTON, July 25 (Reuters) - More than half of the babies born today may expect to live past the age of 100, according to the U.S. Census Bureau, which forecasts the number of Americans over 65 doubling to 80 million by 2040.

So it is no wonder that Laura Carstensen, director of the Stanford Center for Longevity, is in high demand from executives at financial services companies like Fidelity Investments, Prudential Financial Inc and Bank of America Corp's Merrill Lynch for her advice on how to assist an aging clientele.

Carstensen, a social psychologist, is helping to reshape long-term financial planning, careers, housing and even Social Security in a grayer America.

The task is not a small one. Several recent surveys by AARP have found only slightly more than half of Americans ages 45 and older are confident they have saved enough to cover medical and living expenses in retirement.

Reuters spoke with Carstensen about how to get more people started on retirement planning:

Q: Where should people start?

A: I'd urge people under 40 to just do something; it almost doesn't matter what it is. Open an account, put a little money in it, and start. After age 45 is when to start paying serious attention.

Q: In 2003, you coined the term "the positivity effect," a phenomenon that suggests that the older people get, the more they tend to focus on positive information. The drawback is that while older people are perhaps happier, they may ignore crucial but nettlesome details, sometimes making themselves vulnerable to scams.

A: The effect is most pronounced in casual processing of information. You're walking down the street and notice the pretty flowers instead of the cracked sidewalk. But if you sit down and do a careful review of certain information, the effect tends to go away. What concerns me most is that it may prevent people from sitting down in the first place to make financial decisions.

Q: Your research also focuses on how emotions cloud our judgment when making long-term decisions. What's standing in the way?

A: We need to plan for decades out, and humans are in no way hardwired to do that. Everyone should be thinking and starting to say to their friends, family and co-workers, "By this age, I should have taken this step to prepare for retirement or invested this much." Deep down, people want to conform. They just need guidance.

Q: What's biggest misconception about financial planning?

A: People believe somehow that they have to pay a lot of money to grow their money. I would do whatever it takes to avoid a lot of fees. Most people don't need financial advisers. Research shows that, in a lot of cases, people would be best off if they just put their money in a fund indexed to their age and walk away.

Financial advisers are great as life coaches, however. The most valuable thing they do is getting people to talk about life after retirement and what they want to get out of it. Do you want to travel? Volunteer? Set up a small business? For a lot of people, you save in order to retire and never think about what's next.

Q: Is there anything the government could do to help people save?

A: The government should offer financial products that don't have fees attached. One suggestion that impressed me is if you hit 65 and have only saved, say, $100,000, the government sells you an annuity that bumps up your Social Security payments. Americans who haven't been able to save enough or were hard hit by the Great Recession would benefit the most.

Q: What about working longer?

A: The best assurance that you'll have money in your advanced years is to keep working. But we also have the opportunity to have much higher-quality working lives, and that starts with working less. For most jobs, people could probably go to four days and get as much done.

We could have new models for careers where workers come in and out of the workforce throughout their lives. Perhaps institutionalize sabbaticals. People could work regularly for three or four years full-time and then maybe take six months off - take a course and go back to the same employer with new skills and information. Maybe head in a totally new direction.

Q: How long should people expect to work under this model?

A: The two groups of people who would work less are young parents and old people. I talk about a working arc where you don't reach full-time work until your kids are in middle school or out of high school even. You can both be with your kids while they're growing up and work part-time. Then you would hit full-time work in late 40s, early 50s, and then work full-time until you're 75 or 80 and start to taper off to part-time work.

We've got time. People will probably have to work longer for financial reasons, so why not improve quality of life now so people aren't burnt out by the time they are in their mid-50s, dying for retirement?

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