There is a lot of talk about what exactly retirement is in the modern age and if retirement funds, as we know them, are outdated.
If you go back in history, it is something like 100 years ago that retirement funds were started to help people live after they had stopped working. In those days, that was expected to be not much more than a few years. At age 60, your life expectancy was just a few years, so you were making an investment to see you through a reasonably short period of time.
As we know, life expectancy has improved dramatically over the past few decades. In South Africa today, if you retire at 60 your life expectancy is 20 years. And, if you have a partner, there is a 50% chance that one of you will be around at age 90. So into your 60s you still have a long-term horizon in investing terms.
If you stop working at 60 and all you have to rely on is your retirement capital you are going to need a lot of it. Most people don’t have adequate retirement capital. In fact, according to National Treasury estimates, only 6% of South Africans are on track to a dignified retirement.
This is one reason that it really makes sense to phase in retirement. At 10X Investments, one of the things we suggest is that retirement should be a process rather than a leap, a transition rather than a bungee jump.
In financial, as well as emotional, physical and spiritual senses, it is better to not go from working fulltime and earning a salary one day to zero work and zero earnings the next.
What we see at 10X is that after reaching retirement age many people can stay on as a consultant or earn some other income to sustain them for a few years. After all, by the time you reach the traditional retirement age you will have amassed a wealth of knowledge and expertise that would be very valuable to the right people.
From a financial perspective, the income alleviates the financial challenge quite substantially. If you can delay your retirement by one or two years, you have a little longer to save and accumulate capital. You also have one or two years less of drawing down capital.
But it is not just about the financial aspect, there is also an emotional benefit. A lot of people who retire in one big step – going from working full time one day to retired the next – find they suffer from a sense of lost purpose.It is a lot for some people to make the emotional adjustment.
That is also why it is good to have other interests beyond your work. Interests and hobbies will help ease the transition. If you can earn some income from those interests there is a double benefit.
When the first pension funds were designed a little more than a 100 years ago the useful life of a retiree was expected to be only a few years. Whereas now our useful lives in retirement can be measured in decades. It is no wonder there is a lot of talk about what exactly retirement is in the modern age, and if retirement funds, as we know them, are outdated.
