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Age is a funny thing. Unless you stare it in the face, like I am – then it’s not so funny.
My point is that we have very defined ideas of what we need to do at certain ages.
Like starting school at 6 and finishing (ideally) at 18. Our 20s are for fun, but towards the end of that decade we need to begin ‘settling’ down, start a family and build a career.
In our 50s we really need to start focusing on retirement. When we hit 60, retirement is smack bang in front of you.
But all this is mostly nonsense – for a number of reasons. We’re living a lot longer. Ninety used to be an impossible age, but nowadays a couple aged 60 can expect at least one of them (likely the woman) to live to that age.
On the other end of the equation there is the ‘financial independence, retire early’ (Fire) community. This group is aiming for Fire in their 40s using a combination of low-cost investment products, coupled with a low spending rate that enables a high savings rate.
So, some people retire in their 40s while others are starting second careers in their 60s. This throws traditional retirement ideas out the window.
People used to work their last day at 65 and then start drawing a pension – the latter structured as low risk to last as long as you do. Typically, that would be a decade or maybe a little longer.
Now we hit 65 and our retirement annuity (RA) kicks in, buying us an annuity. But if we’ve done it right, this will be far from our only income.
Ideally, we’ll have other investments like a tax-free exchange-traded fund (ETF) account coupled with a discretionary investment portfolio that we have built up over the decades.
This ‘extra’ investment means we don’t need to be all low risk as we get into retirement. We can balance risk with some low risk (cash and bond-style investments), but also with higher equity risk investments that will offer better returns – which we’ll need if we’re going to live another three decades.
I raise this because a few weeks ago a 50-year-old stated they’d missed the bus and that there was no point in them opening a tax-free account as it would take some 15 years to get to the R500 000 lifetime contribution limit. But that’s surely fine? Heck, open a tax-free account regardless of age. Any tax-free return is better than none.
At 50, one could still reach Fire by 65, ensuring retirement with plenty of time to enjoy a financially independent retirement. It’s likely true that earnings and savings potentially peak in your 50s, especially if you have kids who’ve left home. Fire might in fact be easier at 50 than in your 20s.
The best time to have planted a tree is 20 years ago. But if you didn’t, then plant it today. In 20 years, you’ll enjoy the shade. Even if you think you’re too old to enjoy the shade, it still shouldn’t stop one from planting the tree for future generations.
We need to throw out outdated views of what’s old and how we retire and recognise the new rules that apply. Importantly, those rules show us there’s plenty of time to build wealth and financial independence.
