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Maybe don’t retire?

Jul 13 2017 09:59
Michael Falk
Michael Falk is a partner with the Focus Consultin

Michael Falk is a partner with the Focus Consulting Group. (Picture: Supplied)

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Enough! All this non-stop, commercialised “I need to plan in order to retire comfortably in future” twaddle. Other thoughts that are constantly being drilled into investors’ heads include: Will I survive until my retirement? Can I spend less today so I can maybe spend more tomorrow? 

Who are they – “they” being members of the financial services industry – kidding?

They are not kidding. However, they may be somewhat conflicted since those invested retirement rands generate fees. 

Let’s consider three key unconflicted views on retirement before reaching conclusions:

 - The medical profession continues to research ageing and the impact(s) on retirement.

The discoveries around retiring completely, or exiting the workforce, while still living, should be of interest. It seems “stopping” is bad for your health. Negative health shocks and mortality are generally higher following retirement.

So, retirement could be bad for your health. Maybe don’t retire completely. Work part-time, or at least stay active.

 - Members of the sociology community don’t speak directly about retirement, but discuss happiness.

Their views support the notion of friendships, relationships and community as being integral to health and happiness.

This connects with retirement if only from the perspective of withdrawing from your working community. How much of your social time is spent with co-workers? Surveys in developed countries show that people sometimes don’t retire because they enjoy the company of their co-workers.

If you remember your wedding vows (for better/worse, sickness/health, richer/poorer) you may have forgotten the most important “but not for lunch”.

You, your spouse and 24/7 – just sayin’. Work to keep your relationships alive and well. Get out of your house for at least part of the day.

 - The psychology profession also doesn’t speak directly about retirement, but about mental well-being. People often have their personal identity wrapped up in their work identity.

Think about when you meet someone for the first time. After the name exchange, often comes the question “What do you do?”

What happens when there’s no work? This sense of yourself is inextricably linked to health and happiness. Don’t retire from something, but rather to something that is longer than a few months in length.

If you don’t have something in mind, don’t retire. Volunteer, pursue hobbies, interests (perhaps go back to study) and your “bucket list”. Don’t just exist, live with purpose.

Maybe the concept of retirement is little more than a financial industry scheme to generate fees. The unconflicted view would suggest that maybe you should not retire. Okay, but...

 - What if you can’t find work before wanting to stop working? Maybe re-think retirement as unemployment for older individuals. If you’re older and can’t find work, retirement savings can mitigate stress levels.

 - What if you don’t die before retiring? Maybe re-think of retirement savings as survivor insurance. With no savings, trust that you will not thrive.

 - Why save for retirement if you are not likely to live that long after retiring? Those savings might help replace your lost earnings for your spouse, or another family member. Might this be a legacy of “paying it forward”?

Saving for later in life – whether in a retirement product or not – is beneficial.

Don’t risk your older self having to face retirement without savings. Imagine yourself retired, aged 70 and short on money. According to research, people shown a simulated aged picture of themselves set aside 6.8% of their pay on average for retirement, versus 5.2% for those shown a current picture of themselves. (More here.)

Conflicted or otherwise, the financial industry has a role to play. Perhaps the most pertinent question is how to save enough for retirement without sacrificing too much of your lifestyle today. The advice will likely be to plan one step at a time. 

These steps are tried and tested:

1. What will retirement cost you? Use a retirement calculator or the assistance of a qualified professional to estimate your needed and aspirational spending. These estimates are unique to you and can be done for a variety of retirement ages. 

2. Find out how much, if any, retirement benefits are available to you from an employer or government, through an old-age subsidy.

3. The difference between #1 and #2 are your savings goals. Based on age and time to selected retirement age, the calculator and professional can help you understand how to reach both your needs and aspirational goals.

Even if the amount is daunting, start saving now, and regularly every month. Every bit helps. Save before you start spending. Promise your future self to increase your savings amount with every pay increase.

Within a few years, you will find that you have managed to save a sizeable amount, and as you have done it consistently and regularly, you won’t notice it missing from your pockets.

4. Invest savings for the long term. In investment parlance, this means diversifying some of your savings into stocks, with the help of a qualified professional.

5. Revisit #1 to #3 annually; #4 is often better reviewed less often.

Retirement is not cheap, but maybe that’s because it’s worth it. Saving this way will ensure that you have money at hand in case you fall ill, or lose a well-paying job before you want to retire. And remember, don’t retire until you must.

Michael Falk CFA CRC, is a partner with the Focus Consulting Group.

This article originally appeared in the 13 July edition of finweek. Buy and download the magazine here.

financial advice  |  pension  |  retirement  |  elderly  |  saving