The Future will never be the same
"So, when are you going to retire?" This is a question that I encounter on a regular basis from family, friends, colleagues and clients. "Retire from what", I ask. "retire from work" they reply.
The Oxford dictionary has many references to the word retire such as:
Retire from working + Retire to bed + Retire from a game or from sport etc.
The origin of the word retire is mid-16th century (in the sense "withdraw to a place of safety or seclusion") from the French retirer (re-'back' + tirer -'draw').
I have no intention of withdrawing to any place of safety or seclusion for any reason including that of have surpassed the age of 65. The fact is, even though I am on the cusp of 70 years of age, I cannot begin to think of retiring from what I simply enjoy doing.
As a Financial Coach with nearly 30 years of experience in the financial services sector, much of my advice has been dispensed towards saving for retirement. Each of my clients have unique circumstances and are at different stages of life with differing life expectancies and proposed retirement ages. Some have realistic expectations of retirement and some totally un-realistic. I say that because some younger people who save little towards their retirement via means of Pension / Provident fund savings or via personal Retirement Annuities have visions of early retirement at age 55 or 60 with a view of a long fruitful retirement. Reality tends to set in at around 35 to 45 years of age when realisation hits of retirement funding shortfalls.
As the age of 65 beckons panic begins to set in and the only question to ask is "Will I outlast my money or will my money outlast me?"
Longevity becomes the enemy! With the advent of modern medicine life expectancy is increasing. More than 10 years ago at a medical conference in the USA, utterances were made that "the first person who would reach 150 years of age has been born" only to be outdone by another utterance that "the first person who would reach 150 years of age was already in their twenties".
If a person reaches 65 years of age and has a life expectancy of 100, they will need enough savings to provide lifestyle income for 35 years. If you start working at the age of 20 and continue to the age of 65, you have to save enough money over 45 years to last a further 35 years. Wow! That's a lot of savings!
I did a little research as to how the magic number 65 became the cut off age for retirement and the outcome is documented below.
A brief History of Retirement
The idea of an old age social insurance program was put forward in Germany in 1881 by Germany's William the First at the behest of Germany's "Iron Chancellor, Otto von Bismark. The program was to appeal to the German working class and combat the power of the Socialist Party during the late 1800's. The program was cynical because Bismark knew that the program would cost little as the average worker never reached the age of 65 and most of those who did lived only a few years beyond the age of 65. In fact, on adoption of the program, the original age for "retirement" was set at 70 and Bismark at the time was 74. The newly adopted age of 65 was only set in 1916. The USA adopted a Social Insurance plan in 1935 and they too formally adopted the age of 65 as the official retirement age when the life expectancy for American men was 58. The balance changed after the Great Depression when wealth increased along with health due to improved medicine and life expectancy increased to almost 70 years of age.
Much needed change has to take place in the attitude of individuals towards their views on achieving financial security at retirement age. Re-evaluation of realistic retirement age as well as savings toward the goal needs to take place in order to ensure a favourable outcome.
Recent statistics show that:
- Only 38% of the working population of South Africa contribute to Retirement savings.
- Dependency levels on family at retirement have increased by 58% between 2015 & 2017
Many useful tools and calculators are available via Company in-house Employee Benefit Schemes, external websites and via Personal Financial Planners/Advisors to benefit the user in ensuring that they remain informed on the likelihood of achieving their retirement goals. Regular reviews of the savings plan coupled with options on investment of the retirement savings at retirement age will ensure a greater chance of success.
Rules for successful retirement.
- Start saving toward retirement as soon as possible, even as early as your first pay-check.
Remember; "The best time to plant a tree was 20 years ago; the next best time is now"
- Save at least 10% of your gross income, 15% is even better.
- Don't invest in something you don't understand. Educate yourself on the rules of your Pension / Provident / Preservation funds and Retirement Annuities, as well as the underlying investment funds and their fees.
- Don't get emotional about short-term market deviations. Saving for retirement is a longterm investment strategy and investment into quality funds will prove to generate good returns on maturity.
- Never withdraw from a Pension / Provident fund on resignation or retrenchment. Always seek to transfer the funds into an alternative retirement vehicle. If in doubt, seek professional advice.
- Be entrepreneurial. Look for opportunities to start your own family business and where possible generate alternative income streams.
- Learn to live well within your means and understand that on retirement you will still need approximately 75% of your final salary to maintain your lifestyle.
- Remember one of Suze Orman's quotes:
"True Financial Harmony is only achieved when your Pleasure in Saving Money equals your Pleasure in Spending Money".
2016 IRFA Annual Conference
Invest In Yourself would like to take this opportunity to invite you to join us at the 2016 IRFA Annual Conference from 28 to 30 August 2016 at the Durban International Convention Centre. Clive Harper from Invest In Yourself will be speaking on a 10 Point Action Plan to Ensure a Favorable Retirement Outcome.