Investment management firms are well placed to influence the prospects of aging societies, and not just by helping them save and invest. Investments in retirement are a form of economic energy, and that energy can flow into companies and sectors whose products and services will help meet the needs of tomorrow’s burgeoning older population. Therefore, in a rare confluence of interests, investment firms have the opportunity to impact aging populations in two ways: by helping individuals meet their retirement savings and spending needs and by investing in businesses that will help improve the life experiences of seniors. .
The first step is to help more people save and invest more effectively for their retirement. More than $37 trillion is currently invested in US retirement plans, including about $10 trillion in more than 600,000 employee-run defined contribution plans – 401(k) and others. The investment management industry can help these numbers increase even further, ensuring that more Americans enjoy a secure and productive retirement.
In the particularly important case of employee-managed defined contribution plans, investment managers have an opportunity to improve outcomes for clients: by encouraging employers to automatically enroll employees in defined contribution plans, for example, and automatically increase their dues over time, without caps. Likewise, by continually improving target date strategies, which allow employees to “set and forget” a plan that gradually shifts their portfolio from higher risk to lower risk as they age, investment managers can improve participants’ retirement outcomes.
There are also opportunities to develop new income and payout solutions for retirees. Historically, retirees often withdrew their assets from their plans in a lump sum, but today they are increasingly choosing to keep their savings “in the plan,” taking their distributions over time. To improve the so-called distribution phase, companies should work to simplify the distribution process and create payment-type funds that, in some cases, could allow retirees to receive payments regardless of their lifespan.
At the same time, portfolio management companies seek to invest clients’ assets in companies and sectors that they believe offer attractive long-term, risk-adjusted returns. One such area is the “longevity economy” – the expanding universe of products and services that improve the lives of older people. The older demographic represents a remarkable growth market, with fertile conditions for innovation across many industries and businesses.
The longevity economy offers a wide range of potential investment opportunities. One of the most obvious targets is the health sector. Advances in basic science, the advent of new drug discovery tools and new treatment modalities are enabling the development of high-impact drugs that can extend longevity and improve quality of life. When it comes to the timeline involved in planning for retirement, however – typically a period of 30 years or more – the potential benefit of cutting-edge medical research is even more enormous. Last year, for example, saw the first use of the CRISPR-Cas9 gene-editing tool to treat the disease in humans. Future applications of this type of work could make healthy old age possible for many more older adults than is currently medically possible.
Beyond the healthcare sector, Wellington Management’s recent initiative Future topics research suggests that technology and personalization, two very dynamic economic areas, are likely to support future retirement. Artificial intelligence technology could prove ubiquitous in the lives of older people by 2050, if not sooner, with a number of innovations supporting their physical and mental health. New technologies can help create new forms of leisure and social activities, ranging for example from virtual games to augmented reality experiences.
AI and robotics can also facilitate the development of increasingly personalized services and care, with healthcare and nutrition being among the most tangible examples. We can see companies offering foods and diets that are scientifically tailored to the personal nutritional needs of individuals, based on their genetics, metabolism, environment, and personal wellness goals. Older people could benefit from AI-based fitness monitoring through easy home blood tests. And every older person could be encouraged to adopt a healthy lifestyle through a combination of personalized health information, nutritional interventions and behavioral counselling. The result would be enormous: more years of healthy, independent living.
Investment firms have the opportunity to serve aging populations not only by helping them achieve a more secure retirement, but also by financing companies whose products and services will make a better old age possible. Boston may prove to be a particularly important hub for such activity. A number of notable investment and financial firms are headquartered in Greater Boston or operate major offices in the area. Boston’s stable of world-class financial companies, combined with the region’s growing awareness of the opportunities offered by the longevity economy, can help shape the way we live as we age. We – as a community and as an industry – need to make the most of it.
Jean Hynes is CEO of Wellington Management Company.