While it’s rare for the US government to lead on matters of economic and social need, the recent Government Accounting Office (GAO) report did just that when it declared that the “three pillars of the current retirement system in the United States are anticipated to be unable to ensure adequate benefits for a growing number of Americans.” According to the report, neither Social Security, private employer-sponsored plans nor individual savings are expected to meet Americans’ future retirement needs. This is the result of a paradigm shift: the profound megatrend of population aging, which demands a fundamental re-evaluation of our nation’s approach to retirement. The 20th-century culture of retirement in our mid-sixties and the policy approaches reflecting this quaint notion will no longer do, even with minor tweaks to their details.
As important as the GAO report may be, its over-arching explanation, attributing the retirement gap to “the financial risks associated with certain federal programs,” is neither broad nor deep enough. It is not the details of federal or employee programs that have caused the retirement savings gap, but instead it is the profound and enduring megatrend of the aging of society. Changes to existing programs – public or private – will not do the trick. The GAO’s suggestion that “a comprehensive re-evaluation is needed to better promote future retirement security” is true, but solutions must be more fundamental than fiddling with programs.
As you read through the 200 pages of close detail, consider that deeper solutions are needed; particularly those that relate to how we organize ourselves through the strategic lens of an older society:
1. The single-most critical point is the aging of society, and not the details of public or private programs.
2. To adapt, our society must reframe the period of our lives now considered “retirement” so that we restructure the balance of income and savings both at the personal and society levels.
3. As individuals and society, we must also invest in health to change spending needs as we age. We must shift critical spending on health from it being considered a cost to the transformative notion that it is an investment – consider such areas as new innovative technologies for remote care monitoring and delivery, like Intel’s new software platform to help providers reduce hospital readmissions and lower costs, as well as new innovative treatments, and spending on wellness and prevention – those medicines coming from the likes of Pfizer, Novartis, Roivant, Lilly, or Roche.
The aging of society – living long lives to 100 and more old than young – represent profoundly different societal factors than when last century's retirement programs were invented. Therefore, the needed changes will be larger than details alone. Nor is it surprising that all serious societies on the planet have begun to step up to the challenge. The global phenomenon of living way longer and plummeting birth rates is prompting action across the world – from the U.K. to China, from the Netherlands to Mexico, from Japan to here in the US.
So, let’s congratulate the GAO for their hard work and detailed report, which can serve as the starting point for the real discussion about how we must reframe retirement. In particular, 3 fundamental issues that will be critical for this effort:
· We desperately need to start a national conversation about retirement. The GAO decided to produce this report because its experts saw a void in the national conversation about the future of retirement savings, particularly at the highest levels of government.
· The current retirement system is fiscally risky for everyone involved. The GAO is ultimately interested in the fiscal health of the US government, and by extension the US economy, and it found that our current retirement system is highly risky. For example, the GAO report finds that the Central States Pension Fund – which covers 400,000 participants – faces serious questions about its future solvency. This is a microcosm for the entire US retirement system, which threatens to buckle under the escalating financial needs of a growing population of older adults. And at the individual level, present and future retirees face a risk of “outliving” their retirement savings if they do not reconsider the adequacy of those savings in the light of increasing longevity.
· Later-life healthcare costs are exploding. As the average lifespan steadily increases, average healthcare costs have also increased, particularly those related to age-related diseases and long-term care. Addressing this will require investing in innovative healthcare solutions to actually reduce costs overall. For example, remote patient monitoring has been found to save as much as $150,000 for some patients by reducing hospital readmissions and other costs. In chronic condition management, the right combination of technology, medication, and care has been shown to have the potential for $189 million in savings per year in some pilot programs. And of course, investment that leads to a breakthrough Alzheimer’s treatment would deliver more ROI than almost any other healthcare effort, as the disease is projected to cost the US more than $1 trillion annually by 2050.
Effective retirement solutions will need to fundamentally engage with these macro-issues, in order to re-align public policy with the realities of population aging in the 21st century. The GAO provides an important wake-up call for our 21st-century economic and fiscal health.