Zannat Reza: We've all heard that our population is getting older and life expectancies are going up.
And as we think about this new reality, we also need to think about money.
How are we going to fund our longer lives?
For many of us, the idea that you could retire at the age of sixty-five, then rely on a pension, isn't realistic anymore.
So what do we do?
How do we make sure that we can grow old with financial stability?
I'm Zannat Reza.
Welcome to The Future Age Podcast, where we explore bold ideas and creative solutions in reimagining life as we get older.
This episode has been brought to you by our friends at Scotia Wealth Management.
With increasing life expectancies, it means we get more opportunities to build the lives we've always envisioned.
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If you're new to our podcast, check out some of our earlier episodes on the future of women's health, how caregiving impacts the economy, and designing communities to help us live longer, healthier lives.
Today, we'll explore the concept of financial wellness and how we can rethink our approach to finances as we live longer lives, from big policy changes to personal best practices.
You'll hear my conversation with economist Rebekah Young, who's the vice president and head of inclusion and resilience economics at Scotiabank.
She's also a frequent commentator in the media on issues around finance and economics.
But first I spoke to Theo Kocken about how countries around the world are approaching the financial well being of their aging population.
Theo is a professor of pension and risk management at VU University in Amsterdam and NWU University in South Africa.
He's also written multiple books and is the director of a documentary called Your 100 Year Life.
I loved your documentary.
It really pushes the boundaries on what we tend to think about is our three part life, right?
You go to school, you go to work, and then you retire.
And so when we're thinking about rethinking what life could look like as we get older, financial wellness is obviously a part of that equation.
So from your perspective, what are some of the urgent issues that we need to address now to prevent what you call old age poverty?
Theo Kocken: It's amazing that for a hundred years, we have been gradually growing older.
As a society, the life expectation grew roughly twenty, twenty-five years per a hundred years.
And we hardly did anything about it to become financially resilient for this phenomenon.
At the same time, fertility rates are going down in the Western world.
So there are less people to finance the elderly people and the elderly people live very long after what we now call retirement.
The whole math doesn't work at all, but nothing, almost nothing happened for decades.
The retirement age hardly changed the way that we think about retirement.
Maybe we have to save more, maybe we have to work longer.
All these things are, of course, from a politician's point of view, very bad for their voting results.
So they tried to avoid it and it now has become something that's totally unsustainable.
The ratio between the non working population and the working population is getting higher and higher.
So what we see is that old age poverty is already higher in the Western world than the average poverty in countries.
When most countries in the OECD on average have a poverty of eleven percent, that now for elderly people is fourteen percent.
For elderly women, it's even much higher, seventeen to eighteen percent on average.
Zannat Reza: In some countries, the numbers are even more worrying.
In South Korea, fourty-five percent of single women over the age of sixty-five live in poverty, which is triple the poverty rate of the general population.
And that's according to 2020 statistics from the OECD.
On the other end of the spectrum, the old age poverty rate in the Netherlands, where Theo lives, is around six percent.
So what exactly is the Netherlands doing that those other countries aren't?
Theo Kocken: The Netherlands is a bit like Canada, by the way.
That means the state pension is already pretty okay to avoid poverty, but a large amount of people have occupational pensions.
Almost everyone will work.
And that, that amount is doubling almost your pension on average.
In Canada, for example, there's also a much lower poverty than average in OECD.
You have a very, very, very good system for the, the public workers, less good for the private companies that you have.
So that is a little difference with the Netherlands, but for the rest, if your public system would also apply to the, uh, the private companies, then you would have one of the best systems in the world.
Zannat Reza: We'll talk more about the specifics of Canada's system in a moment.
But Theo says government pensions are just one part of the solution to old age poverty.
Theo Kocken: We have to think about solutions, but if you ask me what are the solutions, we knew them already fifty years ago and nothing happened.
So I'm repeating them now, that we need better retirement systems, that we need to have more people involved in not only in the state pension because state pension is usually quite low, but also occupational pensions for including self employed.
So one of the solutions is not only financially that we save more, but also that we work longer, but then in different jobs that we think about retirement in a different way.
When we get older, we still have human capital.
We still have the ability to generate income.
We don't have to rely on the government or rely on our friendship fund.
We can also rely on ourselves, maybe to a lesser extent than when we're thirty or forty years old.
But at sixty and seventy, you can still use your human capital and generate income, maybe in a totally different job, in a totally different area, but at least that you're not totally dependent on what you saved in the past.
Zannat Reza: Some of you might be listening to this and thinking, is the solution for old age poverty really just to forget about retirement and work longer?
But it's not just about money.
People are rethinking retirement for all sorts of reasons.
It's a topic we explored in episode two called The Future of Work.
Have a listen to that episode if you're interested in learning more.
Theo pointed out a few of the benefits of staying in the workforce longer.
Theo Kocken: Part of the solution to make people work longer is financially a solution, but also I think from a human rights perspective and also from a better purpose, a better social engagement with people, better mental health.
It solves a lot of problems.
Zannat Reza: In terms of more people being self employed or the gig economy workers, what are some of the global trends you're seeing in terms of helping sort of support that financial resilience as people get older?
Theo Kocken: I don't know what will happen actually with the self employed in the future, if they will fall into the poverty trap, but I do think they will, because most people in the Netherlands, for example, are poor.
Not many, but those who are poor didn't have an occupational pension fund.
And that's a point where Canada with your Canadian pension plan is doing better because even self employed have to invest some of their money into that plan.
People don't want to think about their elderly life and think if they have to pay now, that's taken away from me.
Zannat Reza: People generally have a hard time balancing their needs today with their needs for the future.
A report from the National Institute of Aging notes that although most people can afford to wait, the overwhelming majority of Canadians start taking their pensions before they turn sixty-five.
Even though waiting until they're seventy will likely improve their lifelong income.
Theo says this struggle between our current and future selves is why saving shouldn't just be a matter of personal responsibility.
Policy plays a valuable role here.
Theo Kocken: We always need the government to do something about either saving better and preparing better for your elderly life and maybe stay active in another role, in another job.
The government needs to do something there.
Otherwise people won't start to save because our brains are not wired for it.
And people won't start to think, hey, maybe I'm fifty now.
Maybe I have to do something totally different.
I have to go for a different job.
I have to find a coach that will tell me, hey, why don't you, what's it, what you like?
What gives you energy?
What is your purpose in life?
Uh, what are your skills?
How did they develop when you're younger?
You were good at mathematics.
Now you're older.
What are you good at now?
Today?
What do you like?
And maybe this and this and this job fits, try, uh, some internships or something like that.
That's, I think the society we need and not a society who says, you know, you're fifty, actually don't, don't put any money anymore in education because you're useless.
You'll retire soon.
Your employer will not want to invest in you because he thinks, yeah, he's going to retire, or she's going to retire anyway, so a waste of money.
Zannat Reza: I want to pick up on something you mentioned in terms of that right to work.
And as you say, people can be pushed out of workplaces at a certain age.
I mean, it sounds like ageism is playing a role here, age discrimination.
One of the articles that I read talked about how do I save for tomorrow if I can't afford today?
So what would be your reaction to that?
Theo Kocken: Yeah, people always think that they cannot save for tomorrow because they already have a problem today.
But if it's taken from them via a pension, they can still save.
If it's not mandatory, people won't do it.
That's one thing for sure.
But then we get back to the point, what's a good retirement?
Why do we think we have to retire?
I think you have to retire if you are disabled.
Or you have to retire when you lose all your energy, but that's usually more around eighty or ninety.
Other people can also move from construction worker into something totally different than a much lighter function, physically light.
But still mentally challenging.
Zannat Reza: This is another place where the government can play a role.
Theo says they could offer training to help people transition into a new job.
Are there some really solid examples of places where they're doing this?
Theo Kocken: Big institutions, even government related, such as, for example, the army.
In the army, many countries, they know people have to retire early, so they help them, they guide them into another direction and into later, let's say civil life.
That's one of the few places where you can see, really, this is what we should do.
We should acknowledge that thirty years or twenty years is much too long to do nothing.
Zannat Reza: So would you say that the most powerful strategy for financial resilience is this upskilling, reskilling, and having that right to work?
Theo Kocken: Well, that's a very good question because I always teach about resilience.
Not only financial resilience, but resilience for companies and how can you become resilient as a person is of course you have your financial savings, but you never know how your financial savings will work out.
And maybe at some point you, you didn't save enough.
Maybe you lose a lot of money.
Maybe the pension funds lose a lot of money.
You trusted them, but it didn't work out well.
And then there are two things.
You become more resilient if you save more, because if things go bad for yourself, a disability, for example, a long term sickness, at least you saved.
But on the other hand, if you, if your savings go bad, you have human capital and combining these two makes you much more resilient.
Zannat Reza: From that global view of financial wellness, let's get local.
Theo brought up Canada's pension system as being a positive example of how a government can support our population as we age, but for many people, that alone is not enough.
After all, those OECD stats I mentioned earlier show about fourteen percent of Canadians over the age of seventy-five live in poverty, compared to eight point six percent of the general population.
I wanted to get a more thorough understanding of what's going on in Canada when it comes to aging and financial wellness.
I spoke to Rebekah Young, who is the Vice President and Head of Inclusion and Resilience Economics at Scotiabank.
Rebekah, what are some of the key financial challenges impacting the Canadian economy, given that we have a rapidly aging population?
Rebekah Young: One in five households are already seniors, and that pace is growing at six times the pace of our population of youth.
So, we're really aging as a society, but also individually, so we are living longer, but not necessarily in full health.
And from a government or societal perspective, governments haven't prepared for this aging.
So, collectively, the challenge is, you know, how do we forge a more sustainable path and one that's aligned with what Canadians actually want in terms of what aging looks like and what can we do individually to build more resilience on that path.
Zannat Reza: You talk about how do we forge a more sustainable path, what are your thoughts on that?
Rebekah Young: That's really the trillion dollar question of what would it take to, to forge a more sustainable path.
And I think that at the heart of it is that we need to be thinking how do we enable income to play a bigger role in most Canadian households.
I would give really big points to Canada over the past few decades, that has made incredible progress on its public pension systems, like Canada Pension Plan or the Quebec Pension Plan.
It is, I would argue, enviable among other countries.
In particular, it is funded so Canadians don't have to worry about the funds being there when they need it.
But it's not particularly a large amount.
Zannat Reza: Rebekah points out that CPP and QPP are not the only supports for older adults.
For example, the government also provides old age security.
But the point remains that the amount of money people are getting is fairly low.
Rebekah Young: We need to look at other mechanisms, other pockets of, you know, of, of fragility in the system.
One area I would point to would be around employee based pension plans.
Now in Canada, shockingly, coverage ratios for employee private pension plans really are in the order of somewhere a thirty to forty percent of the paid workforce has one of these plans.
So, in an era of shrinking labor forces and aging demographics and concerns about broad based financial security and retirement years, that's an area ripe for reform.
And I think also another area is looking at the incentives or applying more of a behavioral approach to how Canadians save, how they look at things like tax free or tax deferred savings vehicles.
What are some of the behavioral motivations?
What are some of the barriers to using these vehicles or using efficiently or effectively?
We need a better understanding or better financial literacy among Canadians as to how to use some of these tools.
We still see often or too often, first of all, an underutilization of these tools.
But then also, if an individual has a limited dollar in that decision, do I put it in a tax free savings account or do I put it in RRSP?
There's often a lack of awareness on which one makes sense for an individual, and that is different for different individuals.
Another area where I think the National Institute on Aging has done tremendous work is on how some of these policies and considerations are communicated, and particularly in those pre retirement years where critical decisions like, do you draw down your CPP at sixty-five or seventy are really important.
Zannat Reza: I was also curious what Rebekah thought about how people can save for tomorrow if they can't afford today.
Rebekah Young: That's a really good question, and I think that one underutilized tool to even start is planning.
And so it is shocking that, you know, only about half of Canadians actually have a financial plan.
Having a plan in place is a good start because I think we all know just through personal experiences, life rarely goes to plan, but if you have a plan, at least in place, you kind of have a sense of where things stand and what you might need to do over a longer period of time to get there.
I think another aspect to going back to financial literacy is that I really do think we need to start very, very early.
And starting in the education system, so it's not just when Canadians hit working age that we should be improving literacy around the tools of savings vehicles, but it should be all Canadians leaving high school should know about balancing a budget.
They should know about compounding interest.
And again, that idea of starting early, even starting small, but starting early can make a much bigger difference in the longer term.
That then coupled with a plan can make a, you know, quite a big difference on mapping out that road to financial security in the long run.
Another area I would focus on is that homeownership shouldn't be the be all and all.
So we need to look at how do we get younger Canadians or lifetime renters to begin accumulating assets at an earlier age without necessarily having to buy into real estate.
And there are a couple of factors.
One, it may just not be affordable for more and more households as house prices continue ratcheting up.
But also, especially in those younger years, individually and collectively, we want labor mobility.
We want people to be able to move cities, move provinces to gain more experiences, to improve their income through job changes.
And if we can find those alternative tools, those alternative savings vehicles that would enable more Canadians to start building assets outside of home ownership.
That could be a benefit for all.
Housing is an important asset in our individual financial security, but in the long run, we needed other parts of the economy to be thriving.
We need to be finding other investable opportunities within the country that'll have returns commensurate or better than they might find in real estate.
Zannat Reza: Can you give me some examples when we're talking about other parts of the economy?
Rebekah Young: We look at what's going on in the US and US has invested a lot in things like AI, artificial intelligence, or more generally in intangibles.
These would be investments in technology or investments in technology to produce more of the tangible stuff that we're used to.
Zannat Reza: What are your thoughts about government policies that provide incentives to work longer?
Rebekah Young: It would be tremendous to have more incentives to work longer.
Through an economic lens, a shrinking labor force is not necessarily a good thing.
We're not only losing people were not only losing labor, but we're also losing very experienced labor that have had a lifetime of working and learning.
So I think that the more incentives that we can encourage people to stay in the job longer, the better.
That is where we need to think about flexibility.
And we see poll across poll is that many senior Canadians respond that they would like to work longer if there were flexibilities, whether it is in hours, the structure of hours, or whether it is in remote versus in person.
It's been a no go for politicians around the world to try to increase things like retirement age.
And so I think we need to also rethink the incentives.
How do we think about using our income tax system or our wage taxation as Canadians go past that sixt-five year goalpost?
How do you enable them to perhaps keep more of that income in those older years so that the incentive to work longer, if they want and need to, that system is in place?
That would benefit both the individual's financial security, but also collectively as we have a shrinking labor force and we're losing this talent and this experience of older Canadians.
Zannat Reza: At the end of every episode, I ask each guest the same question.
If you could wave a magic wand and make one radical but realistic change to improve our society's well being, what would it be?
Here's what Rebekah said.
Rebekah Young: If I could wave a magic wand, it would be around focusing on the silver linings, excuse the pun.
But I think too often we talk about aging as a challenge, we talk about it in negative terms.
I think we're not focused enough on the opportunities, so we also shouldn't put it as a negative that there's tremendous wealth in that aging demographic.
They've got a lifetime of wealth accumulation.
We should think about what is the demand opportunity there?
What are the products and services they want and need?
So again, you know, magic wand, if we could start thinking more positively or more opportunistically, more proactively about what it means to be part of a society that is aging.
Zannat Reza: As for Theo.
Theo Kocken: Well, I think after this whole episode and after our debate, you can, uh, imagine it will be that we retire retirement.
We totally change the way we think about retirement and that everyone in the world would start to think, oh, well, we have the right to work longer.
How can we work longer?
How will it make my life better?
I have other things that I want to do.
So I have the option to do other things.
We have to stay active and involved, socially involved, mentally involved, physically involved when we get older.
It can be everything.
So it's nothing to do with money necessarily, but stay involved in society.
Elderly people used to be very important in every tribe for everywhere in the world, where we go in Asia, Africa, South America, North America, Europe.
Tribes were important.
Elderly people in tribes were very important.
And now elderly people are seen as, that we don't need them anymore.
If I had a magic wand suddenly everybody thinks, wow, elderly people are interesting.
How can we work with them?
That, that would be my dream.
Zannat Reza: A big thank you to Theo and Rebekah for sharing their vision to live a long, fulfilling and financially well life.
Thanks for joining us for this episode.
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