Scared of retirement

Scared of retirement
06 August 2013

I was recently reading about diets that appear to enhance longevity. The typical Mediterranean-cum-Japanese mantra of fresh veg and fish that seems to be the standard fare of people who live longer than most. But I wonder: what are their mental faculties like? I would love to live to a ripe old age and discover what the world will be like in a few decades, as well as meet future members of my family. But I'd want to be healthy and 'all there'. And most of all, I'd want to be able to afford it.

These thoughts came back to me as I watched a super film, Quartet, on a flight recently. I was on my way back from visiting an uncle in his mid 70's who has always been a doer – whether it's the physical labour of beautifying his garden and upgrading his home, or the hard graft of building up his business. Not one to sit idly, he has enjoyed an active life of biking, hiking and skiing. But that's changing, and his body is no longer able to do what his mind wishes him to. I believe his obvious and growing frustrations are due, in large part, to this.

Live long and prosper … but do build savings too

For those who don't know about the movie, it centres on the lives of the residents of a home for retired musicians. They appear to be a fortunate lot: mainly sound of mind and with faculties intact - if this reflects real life then it's a great advert for us all to take up music pronto.

Unfortunately, we cannot bank on being so lucky. Some of us will age gracefully and healthily, able to live independently and safely into our 80's perhaps, but others of us will be in need of great care and assistance in our 60's.

There's no way of knowing how we'll end up – until it happens. Statistics show that we're living longer, but that our savings haven't kept up with the added years. What does this mean? Well, it means that our pensions must provide, and it appears that conventional calculations don't take into account our increasing life expectancy.

Another thing is figuring out how we'll need money to work for us later on in life; when do we make the transition from wanting capital to generate income streams, to a much shorter time horizon where we might need to literally liquidate our assets and most likely spend a lot on healthcare and care generally.

The biggest and fastest growing retirement expense is healthcare

Watching the film, and staying with my uncle, has set me thinking about these issues. Obviously, exactly what money is needed will depend on our health; the biggest and fastest growing retirement expense is healthcare, as well as the cost of survival – how much we will need depends on how long we live.

And it appears we not very good at guessing our potential life span. The Society of Actuaries, a US and Canadian trade group that measures risk in finance, insurance and pensions, finds that roughly 54 percent of retirees underestimate the life expectancy of the average person their own age. This is interesting because it indicates that people might be overestimating how much they can spend during retirement – which in turn means they won't have enough to sustain them for their lifetime.

How much will you need to retire?

Simple online retirement calculators are a good thing to look at to get a feel for what all this means and how it translates into dollars and cents. They ask things like: 'income replacement at retirement' and have it pre-set around the 75% mark. Many advisors would counsel aiming for an 85% income replacement. But the scary thing is that even that appears to fall short. More evidence is pointing towards us needing an income replacement rate of 100%... getting the figures from the online calculators is simply terrifying. I suggest you have a look. I used the first one that came up on the web after putting in a search for 'How much should I save for my retirement'.

So, if you're planning to live to a ripe old age, here's hoping they'll be healthy years, and remember, get your head around the real cost of it and start putting away a big chunk of annual income – right now. It'd be sad to think that your sought-after longevity would turn out to be a threat to your wellbeing rather than the jackpot of joy of being around to share life with your nearest and dearest. The onus is on us individuals to save enough. Are you? I just found out that I'm not... and I'm scared. But will I be scared enough tomorrow and do something about it... that is the question.

This article first appeared in The National. You may also find these articles interesting:


  • Colin

    You are spot on Nima, in fact acoording to a new survey by insurer LV, almost a third of new retirees will see their health deteriorate during the first five years of retirement.

    Its survey revealed that 31% of respondents said their health had worsened, and 10% said they had been diagnosed with a serious illness during the early years of their retirement.

    Health issues aside, the survey also exposed other life changes that can affect the financial circumstances of those giving up work.

    For example, 26% of respondents had given financial help to family members, 19% had moved home and 24% had carried out major work to their existing home.

    There were happy things that those surveyed experienced too - 38% welcomed a new grandchild, 10% received an inheritance and 2% moved abroad.

    But the over arching issue as you mention is we tend to underestimate how much we need for retirement, including health care costs and taking care of other family members.

  • ConsumerWatch

    Workers at the top of the financial ladder have been warned by the Government that they face sliding quickly to the bottom when they retire unless they make contingency plans now.

    A study by the Department for Work and Pensions (DWP) has found that more 12.2 million people in Britain are neglecting to put robust pension plans in place and could be in for a shock later in life.  

    The report says that many face delaying retirement by eight years unless they drastically increase the amount they’re saving.  

    Pensions minister Steve Webb told The Daily Telegraph: ‘People want the same sort of standard of living when they retire as when they were working, but unless you are putting a significant amount by, you could face a significant drop in your standard of living. 

    ‘It’s tempting to think that not saving enough is just a problem for people on modest incomes, but it goes all the way up the income ladder. 

    ‘We found some of the people who will have spent their working lives at the top of the scale could spend their retirements at the bottom if they don’t do something about it.’

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