Traditionally, the focus of every financial plan was retirement. Everything was built around the day that you have to leave formal employment at the age of 60 or 65.
However, more and more people are having to ask what happens next. In a time when life expectancy is steadily increasing, the idea of throwing away your briefcase and putting your feet up to live out your ‘golden years’ in peace and quiet is looking increasingly less appealing, and less practical. For a start, there is little point in retiring ‘to do nothing’. Many retirees find that they are actually busier than they were during the working lives, but the difference is that they can do what they enjoy.
“We are finding more and more people who are re-thinking retirement,” says Kirsty Scully from CoreWealth Managers. “In most cases, they have been
professionals in their careers and they want to stay employed to continue with their personal and professional growth and development, yet they don’t want a typical work schedule. They are looking for flexible working arrangements so as to have a good balance between work and leisure.”
Wouter Dalhouzie from Verso Wealth says that from both a mental and physical well-being point of view, it is important for retirees to keep themselves occupied. “I had a client whose health started failing shortly after retirement,” he says. “He started a little side-line business and his health immediately improved. When he retired from doing that, his health went downhill and he passed away within a matter of months.” Verso Wealth’s Allison Harrison adds that she recently attended a presentation that discussed how important it is for people to remain active. “The speaker explained that if we don’t continue using our faculties, we lose them as part of the normal ageing process,” Harrison says. “The expression she used was ‘use it, or lose it’!”
She relates the story of a retiree who had been in construction his entire working life.
“After a year in retirement, he decided to buy a second home, renovate it and sell it,” Harrison says. “This was very successful, so he decided to repeat the exercise using his primary residence. This yielded a bigger return than the first one and thereafter then moved from house to house, renovating, selling and moving on.” This way he ended up making more money in his 20 years of retirement then he did in his 40 year building career.
But what about the money
Encouraging retirees to stay active for the sake of their health may be fairly uncontentious, but the harsher reality is that many people in retirement have to find something to do for more than just the sake of keeping their minds ticking over. It is accepted that the vast majority of South Africans will not have saved enough to retire comfortably. Many people will therefore need to look for some kind of work to supplement their incomes. This problem is only going to grow larger as people live longer and their money therefore has to last longer. “Because of the way medical technology is developing, we now plan for money to last until our clients are 95,” says Hesta van der Westhuizen, an advisory partner at Citadel. “But the way things are going life expectancy could be 120 for anyone being born today.”
Already many people retiring at 60 still have a 30 year time horizon, and that period is only going to grow longer. Van der Westhuizen argues that this means people need to start thinking about starting an entirely new phase in their lives. “These days a lot of people reach 60 and say they are going to retire now and do another job, but I think we need to start changing our mind set and think about the possibility of going back to university to get another qualification to do the things that we actually always wanted to do,” she says. “We are going to be so much healthier for so much longer, and we need to think about what that means.” In other words, we may need to consider starting a whole new career post-retirement, and not just finding another job. This has big financial implications.
“If you get to 60 and you say I am going to get another job, some companies might take you on, on a half day basis or as a consultant and you might continue earning income immediately, although perhaps at a lower level,” Van der Westhuizen says. “But if you start a new career, you might go to back to university, and you will have to provide for that. “My opinion is that in the future, we will have the ability and the health to do a second degree and launch another career and that will have exactly the same financial impact as when you started your first one.”
This means that financial planners may also have to start having new kinds of discussions with their clients.
“Everybody is just looking forward to when they reach that age when they can chuck the job and retire,” says Van der Westhuizen. “But I think we need to start changing mind sets and having a different conversation. In the future you are going to reach 60 or 65 and you’re going to be healthy and fit and able to live another 40 or 50 years. So what are you going to do for the next 20 or 30?”
Patrick Cairns | Moneyweb | 30 September 2016