We have all seen enough evidence that the way many of us work, live and retire these days is radically different from the way we used to. In the words of the cockney musical comedy by Lionel Bart: “Fings ain’t wot they used to be.”
A recent report in the Financial Times on the future of retirement made the observation (which many of us can no doubt corroborate) that the number of people working into their 60s and beyond has grown rapidly over the past two decades. This is partly driven by financial necessity but also by new opportunities for fulfilling, flexible work: that is, choosing to work rather than having to.
Although it may not seem it, it can be justifiably observed that the notion of retirement as “a significant period of leisure” in the latter part of life is a relatively recent phenomenon, only becoming widespread after the Second World War. But growing financial pressures – caused by rising longevity and the ageing of the baby boom cohort – have pushed governments across the developed world to implement reforms.
Some of these, such as anti-age discrimination legislation and flexible working provisions, remove barriers. Others, like increasing the state pension age, push older people to keep working. These implemented reforms are underpinned and, in effect, aided and abetted by longevity, economic necessity and/or increased opportunity often afforded by technology.
Apparently there are nearly 10 million UK workers aged 50 and over. This represents almost a third of the workforce. More than a million of them are aged 65 and over.
Many older workers, it seems, look for the opportunity to work shorter, more flexible hours. Working men in their late-60s, for example, work on average 10 fewer hours each week than those in their late-50s.
Many who continue working out of choice also have pension arrangements that can yield income, and this allows them to be more demanding in relation to the flexibility they need (and want) in their employment. In effect, maximising the return on the “investment” of work is not the sole driver. Regardless of this, as for all aspects of working, investing and drawing down, paying attention to ensuring tax efficiency is baked into the planning can have a seriously positive effect on the bottom line.
A balance between decent pay and desired flexibility has to be struck. And it is not just employment that these continuing workers select.
The importance of greater flexibility could go some way to explaining the prevalence of self-employment among older workers. Large numbers of older people now work for themselves, often part time. This self-employment is increasingly made up of higher skilled occupations in the finance and business services sectors in London and the south-east.
Over the past few years, Barclays Wealth research has identified increasing numbers of high net worth investors (over 60 per cent of those surveyed) have no plans to retire – causing it to coin the term “neverretirees”. Further recent research finds that just 12 per cent of workers aged 65-74 say they work because they “need to earn money”. In contrast, more than a third say it is because they “enjoy the work” and a further one in five because it gives them “a sense of purpose”.
By continuing to work, individuals are continuing to exploit their so-called “human capital”. Human capital is likely to be an increasingly important asset class. Its continued deployment reduces the strain on financial assets and maybe even allows a little more risk to be taken with them, which could lead to a little more reward.
For those still working full time, explicitly addressing the extent to which they expect to continue to exploit their human capital should be hardwired into the retirement planning process. It can have a significant impact on goal setting and detailed savings plans. And while we should not over rely on a single asset class it needs to be factored in.
If human capital is to be part of the asset mix, then it makes sense to take time to take care of this important source of income and consequent required strain/demand on financial capital. Right, where’s the gym and green tea?
Tony Wickenden is joint managing director of Technical Connection. You can find him Tweeting @tecconn