Can people still retire at 65?
According to popular adverts making the rounds on TV and radio the first person to live to 200 has already been born.
Whilst this may seem a bit unbelievable, the advances we are seeing in medicine and diet, plus the adoption of much healthier pastimes and exercise regimes, has definitely led to longer life expectancies.
Jacques Brown, a Wealth Manager at Private Client Holdings says that added to this is the fact that socio-economic conditions have also changed. People are getting married and having children later than the previous generation. Children are staying dependants for longer than before as entry into the job market has become increasingly difficult. Day-to-day living expenses have escalated.
“This all puts strain on the average person’s ability to save. Costs associated with retirement, such as retirement homes, electricity and groceries, have also escalated, and of course medical expenses climb as we age.”
“Added to this, returns on investments have decreased from before,” advises Brown. “We do not see the same returns on the average balanced fund as before due to tepid returns on the local and world markets, as well as low returns on property investments. This would mean that people saving for retirement have to save more capital in an environment where there is less surplus income. This also means that people in retirement have to tighten their belts.
Doing the maths
According to Brown, in the financial planning industry there are algorithms, formulae and electronic tools that are used to help people plan their finances so that they can save for retirement, the aim being that they don’t run out of money in retirement. “For that we ask them at what age they would like to retire, what their savings amounts are and what income is needed in retirement. We then use certain assumptions, such as inflation and growth rates, to work out whether the client will have enough to retire or not, and manage expectations.”
“However, the challenge here is factoring in ever-increasing life expectancies. From a financial standpoint people will have to work for longer in order to save for a longer retirement - the 70’s are the new 60’s. I would imagine then that future generations would then have to work into their 80’s to save for their retirement.”
The answer is no If we take a typical professional person who leaves school at 18, studies, takes a gap year, starts earning enough money at age 28 to start saving and has a new life expectancy of 108. If they were to retire at age 63, that means they only have 35 years to save for 45 years of retirement. “It does not matter what formulae or assumptions you’re using in the planning, it may be am impossible task to save to that extent,” cautions Brown.
“I’m reminded of some clients of mine years ago who were in their 90’s and down to their last savings. They were being supported by their grandchildren who were young professionals in their 30’s. The client said to me “I simply never thought I would live to be this old”.”
The importance of goals based investing
“From a planning for “eventual” retirement perspective, it is important to focus on quantifiable goals. PCH follows a goals-based investment philosophy where our clients determine clear lifestyle goals that they want to reach and afford during their working years; like a comfortable retirement, international holidays, second homes, private school fees, a legacy, etc. This allows for focused investment planning and to clearly lay out the order of prioritised goals and bespoke investment strategies to guide clients on a journey to achieve those goals,” concludes Brown.