The days when children can expect to inherit the house and significant financial wealth may be numbered. As people live longer, assets will be increas-ingly used to finance retirement, and especially nursing care and medical expenses later in life. In one sense, the distribution of care and resoures has turned full circle.
A century ago in westernised countries, before the advent of the welfare state, responsibility for supporting the elderly lay largely with the extended family. With the arrival of the welfare state, and in particular the development of pension programmes, individuals generally came to expect 10-15 years of healthy longevity after retiring in their early sixties. With growing affluence and rising wealth, the children of the middle classes could expect to inherit some of this wealth on the death of their parents: the flow of resources within the family switched from old to young, in contrast to the pre-welfare state era.
But we are now perhaps entering a third era. Most people no longer work after their late fifties, and are living significantly longer than two decades ago. There is great uncertainty among demographers as to increases in 'fourth age' longevity: that is, of the expected lifespan of individuals living beyond 75+. Periods of retirement of 30-35 years are beginning to prove to be the norm in the developed economies. Specialist nursing and medical care will be able to prolong life considerably, but may prove expensive. The Royal Commission of Long Term Care is currently wrestling with the problematic issue of who is going to pay for these trends.
At the same time, public pension plans are in considerable trouble around the world given past excessive generosity, and the ageing of the population. Annuity rates are declining sharply in private plans, and the increase in private resources of the newly retired may begin to decelerate. The insurance market will develop improved packages of releasing housing equity and providing long-term care insurance. It seems likely that the family will again play a major role in financing prolonged retirement: we may be reverting to the original model of children supporting their parents late in life. The days of significant inheritance may be over for all but the very rich.
ESRC-funded research, such as at the Centre for the Microeconomic Analysis of Fiscal Policy at the Institute for fiscal Studies in London, has looked at what saving people undertake, and at what assets are available to retired people. But there is a flip side to the coin: for many people the decision as to when to retire is also of crucial importance. From the point of view of the economist, when to retire and how much saving to accrue for retirement are part of the same decision-making process.