The Death of the 3-Stage Life
In this blog piece I'm going to talk about something a bit different. I'm going to discuss not the financial planning developments of the next 5-10 years, but what could be in store for the next 20-30 years and how the profession will have to adapt and plan for inevitable structural changes in how we work and plan.
If we think about the typical '3-stage life' embedded into our society. Ages below are extremely broad and dependent on the individual however it generally follows a pattern such as this:
Education (0-23)
Work (23-65)
Retirement (65+)
The issues this typical life stage planning is that while it may still be suitable for today and maybe even the next generation of retirees. It falls apart when considering the 2 main mega-trends affecting society going forward:
Increasing longevity
A child born in the West today has more than a 50% chance of living to above 105. A century ago that was less than 1%.
2. Technological displacement
In 1910 in the US, one in 3 workers were even farm or farm workers. Now it is less than 1%. As AI continues to develop many of today's jobs are certainly at risk. This isn't just limited to the obvious ones such as automated vehicles but will likely start to encroach on most office-based roles.
The unshakable maths of it
The reason why they are teaching these secular trends in life stages as part of the MBA program in London Business School, is that it has a profound impact on not only portfolio but also life management. The 4% rule was based upon a 30-year time horizon. It falls down considerably if we extend that to a 50-year time horizon. In fact - most retirement assumptions struggle to keep up with an adjustment for a considerably longer life. If it does become true that over 50% of the population will live past 105. What impact will this have on how we structure our income and our time?
There are 168 hours in a week. Across 70 years that is 611,000 hours. Over a 100 years that is 873,000 hours. That is a long time to fill with not only financial security but of purpose. It reinforces the need for the currently (pretty much untouched) area of financial planning. Where it considers not only the mathematical elements of ensuring money doesn't run out, but also to help lead a life of meaning.
While the concept of struggle to make money last may at first glance seem somewhat negative we should also consider and embrace the opportunity the expectation of more time offers. More time as a population to gain experience, wisdom and skills. Increasing longevity will mean that planning will have to truly holistic and not just consider managing money but also managing people. How our human capital can be used alongside financial capital and how these can be used in tandem to ensure we get the most out of life.
Getting comfortable with displacement
If you think it's perhaps difficult for us to imagine 'inventing' a stage of life which is commonly adopted. Be it - retraining/career breaks, 2nd-stage life/work, whatever may be relevant. Consider the development of subcategories of life such as teenagers in the 1950s. Or, how about general retirement if we go back even further?
As our society develops and adapts, so do our concepts surrounding life stages. They become more nuanced and considered. We can already see the early stages of these typical transitions in planning stages. For most millennials the concept of a single job career is almost unheard of. Barring some professions like medicine, the days of a 'job for life' have been long gone. As have the some of the typical considerations of age and retirement. When sitting members of the Supreme Court are younger than touring members of The Rolling Stones. Perhaps we have to re-think our typical perceptions or the structure of life, work and age?
If there is a long-term theme which may be consistent for future generations it is - one of reinvention. Where technological displacement drives changes to our working environment requiring us to retrain and rethink our own career paths. As I've mentioned in earlier blog posts - I think for financial planning this is already playing out right in front of us. In-fact Brett Davidson touched on similar themes on market disruption in his recent white paper:
The firms who 'lean in' to the ability to automate where possible are the ones who will stay afloat and grow in a landscape of increasing cost, competition and regulatory burden. The successful financial planners of the future are the ones who can not only develop their skillset beyond product based sales but more towards holistic financial life planning. In essence - the only way to beat automation is to focus in to the areas which cannot be automated. The very human relationship building, coaching and goals quantification. The type of skills where the silence in conversation and the right question at the right time can never be outsourced to an algorithm. Like the industrial revolution paving the way for an exponential increase in the power of production. AI could cause an exponential increase in the ability for tasks of cognitive complexity. The benefit of this is that, if AI and automation does displace some human jobs then it offers an opportunity for humans to be more human.
The 5/7/9 stage life - Planning for change
If the need for reinvention becomes a growing theme and the standard dates of retirement become an outdated concept. It follows there are clear planning considerations around this. Firstly - liquidity will become a key area of any cash flow model. If career breaks are required to retrain then the cash flow design will likely be one of 'valleys and troughs' as opposed to one of 'accumulation and drawdown.' I maintain that a disruption in typical life stages will increase the need for proper planning, not decrease it.
Remember - Time is a gift
Our time is our most valuable asset as it is the only asset that we cannot replace. The ability for there to be a revolution in productive capacity which can change the our views towards work should be seen as overall a positive step. Although we cannot hide that it does pose many challenges to both the individual and wider society if these predictions come to pass.
From purely a financial planning perspective this does offer huge opportunity for forward-thinking planners if they ensure that it is people not the product or even the plan that is at the heart of the service we offer. I am confident that as-long as that is the bedrock of the service. The death of the 3-stage life will not be the death of the profession.
(Influence from Prof Andrew Scott and the 100 year life. All figures taken from this.)
