A challenge for the financial planning industry is how to factor in ever-increasing life expectancies when it comes to retirement savings goals, according to Jacques Brown, a wealth manager at Private Client Holdings.
"People will have to work for longer to save for a longer retirement. The 70s are the new 60s. I would imagine then that future generations would then have to work into their 80s to save for their retirement," says Brown.
But would this be possible? For Brown, the answer is no.
He gives the example of a 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 such a person 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 an impossible task to save to that extent,” cautions Brown.
"From a planning for 'eventual' retirement perspective, it is important to focus on quantifiable goals. This allows for focused investment planning."
Brown adds 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. On top of that, 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," he says.
"Added to this, returns on investments have decreased from before. 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 must save more capital in an environment where there is less surplus income. This also means that people in retirement have to tighten their belts.