Depends on a lot of things

Work

Some people can’t wait to be done with it. Others can’t imagine living without it.

Due to running this site, I often hear people say something like “I’m not going to be able to retire, so I will just work until I drop”.

The Japanese government is trying to make it easier for people to keep working until the age of 70. We’ll see how well that goes. Previous instances of the government ‘urging’ companies to do things didn’t really yield the desired results…

The New York Times is also publishing articles extolling the virtues of working past the retirement age.

Longevity

People are living longer now. Current life expectancy is in the mid-eighties for many developed countries, and is actually increasing by 2-3 years per decade (so I might have a shot at 100 by the time I get there). If you believe Ray Kurzweil I might have a shot at several centuries, if not straight-up immortality 😉

It is hard to believe, but I think it is better to assume you will live for a long time and make plans accordingly, than to assume that you won’t and fail to prepare.

If you’re wrong about the former, your family or favourite charities get your excess money. If you’re wrong about the latter you will spend your last few decades desperately trying to stave off poverty.

Pensions

State pensions are coming under a lot of pressure. They were created when most people died before or shortly after the pension age, so only had to pay out a few years.

Sadly the schemes have not changed along with societies, so we’re faced with having to pay in more, receive less, and get our pensions later.

Most companies no longer provide defined benefit plans (where you get a set amount, often a proportion of your final salary). Instead we have the option to invest in defined contribution plans, where we choose what to invest in and hope those investments work out in the future.

In short, we cannot expect the same level of support our parents and grandparents got in terms of our pensions.

What to do?

Well, I think the conclusion is pretty clear here. We may have 3-4 decades of life after reaching the current retirement age, and we are going to have to support ourselves somehow.

For your own sake, and for the sake of those around you, make your own provisions for retirement.

Some combination of work, investments, and cost-cutting will be needed. If you are able to and someone is willing to hire you, it may be possible to keep working. That is one way to pay the bills. If you started saving/investing early enough or seriously enough you may have enough to get you by. Or if neither of those are true you may be able to cut costs enough to survive.

If you don’t want to end up with option three as a default, it’s probably a good idea to start thinking about this stuff now.

I would start off by paying into any public pensions you are eligible for, because they provide a defined benefit. You will get your pension until you die, regardless of how long you live or whether you are mentally competent. This is extremely valuable.

Then invest in tax-advantaged accounts if you can. I recommend everyone save and invest at least 10-30% of their income. Over a lifetime, this should be enough for you to live on in retirement.

Finally, think about what kind of life you want. How much is that going to cost? You should have a realistic plan to meet those costs.

If your plan includes working, try to get an idea of what kind of work you will enjoy, will be able to do when you are older, and will be in demand. Getting the appropriate skills and connections now will make things easier later.

I see and hear from so many people that are blindly heading towards an utterly miserable final few decades, and it doesn’t have to be that way.

How about you? Do you have your retirement lifestyle planned out? Do you know how you are going to pay for it?

7 Responses

  1. It might not be clear what the dynamic behind the extension of the retirement age is unless you understand what required extensions (like the one to age 65) mean for companies. In Japan it is almost impossible to fire “seishain” (正社員) employees for poor performance but in practice even though salaries tend to increase with age, productivity for many of those employees actually falls. That is why many companies have systems where salary is automatically cut after a certain age and when the official retirement age extended to 65 some also implemented plans that allowed a buyout of employees who would take voluntary retirement at age 60 or earlier. Those moves are costly compared to allowing companies to release employees automatically at age 60 and then selectively contracting with employees they would like to keep. If the government extended the requirement to employ until employees reach 70 it would again add to those personnel costs and impede the flexibility of personnel departments, which is already not very flexible in Japan. This is also one reason there has been such a shift over time in Japan to reduce “seishain” and instead have contract employees whose contracts don’t get renewed when they would push up against the time limits for having the benefits of official employees.

    1. From the article it sounds like the ‘extension’ to 65 and also 70 is in fact rehiring with a lower salary. Is that not the case?

      At my uni the current retirement age is 63 with an option to stay on with reduced salary and responsibilities to 65. I presume this will rise over time.

      1. I think an economist would say the sharp salary declines you see at these cutoffs (age 60, age 63, maybe even age 55 in some cases) represent trade-offs that are applied across-the-board because setting retirement ages without the freedom to fire employees increases the total costs for an age cohort at a company beyond the market value of that cohort’s performance. If you had a rule that salary could not decline at those ages, it would just mean the entire workforce’s salary increases would be adjusted down and there would be an even greater incentive to avoid hiring new older employees. Japan has the worst labor productivity in the G7 so it already is a bit lax in efficient use of labor. The legal status of these retirement ages in actually not very straightforward. See for instance https://www.jil.go.jp/english/jli/documents/2018/009-04.pdf

        1. The problem is that the courts have found it is a “socially accepted practice” to reduce an employee’s wages by 30% – 40% if they are re-hired after reaching the company’s retirement age, even if they do the exact same work they did before reaching the mandatory retirement age. This is true even in workplaces where productivity forms the basis for the remuneration system, for example the number of deliveries made by drivers.

          1. I agree with you that is completely unfair and doesn’t help the employee, society or even the company practicing that kind of blanket handling of people based solely on their age. I guess the point I want to make after seeing how international companies handle employees differently in each country is that when companies are forced to retain employees regardless of performance, it results in lower employee wages and reduced hiring. I think I see that in some continental European countries and in Japan but not in the US and less in the UK.

          2. I agree with you totally too. I have observed the lack of productivity myself, when I was working with one of Japan’s Inc’s largest companies.
            I spent a couple of my years there in a department that to some extent was treated as a repository for employees the company could no longer find a use for. Nap time generally started for the older guys at about 3:30pm.
            Unfortunately, I also observed the downward pressure it placed on wages, which is why I no longer work there.

  2. A colleague of mine pointed out a distinct pattern forming in the area of increasing retirement ages.

    2006: The previous law that “urged” companies to continue employment until 65 is amended, making it a requirement. The options companies have are to scrap their compulsory retirement age, raise it to 65, or implement a program for re-hiring employees that have reached the compulsory retirement age. (The latter is by far the most popular)

    2013: Revision to the law makes it illegal for companies and labour representatives to sign an agreement that places restrictions on continuing employment until 65.

    2020 or 2021: The recently announced law that “urges” companies to offer continued employment until 70 will likely come into force.

    2026-2028: Expect a future revision that upgrades the “urging” to a requirement.