Is retirement planning dead?
The concept of retirement is more recent than the discovery of electricity. It is newer than the invention of the sewing machine, and not even as old as the telephone.
It is widely accepted that the idea of people reaching an end of their working lives was first suggested by Otto von Bismarck in Prussia in 1881. He argued that the state should look after those who were effectively physically unable to earn a living.
The idea was finally accepted in 1889, with the government agreeing to provide for citizens over the age of 70. Although estimates differ, it is believed that this was higher (perhaps much higher) than life expectancy at the time.
Initially, retirement was therefore a social security idea. And it wasn’t something anyone was expected to enjoy for very long.The Prussian state expected to provide these benefits for only a few years.
Times have changed
Now, 130 years later, retirement is something quite different. The average life expectancy in the UK is 81. Anyone retiring at 65, can therefore expect to live another 16 years on average. With longevity increasing, many will live much longer.
This is clearly a very different paradigm to the one into which Bismarck introduced the idea of retirement towards the end of the nineteenth century. Yet, certain ideas about what retirement is have hardly changed.
The most prominent is that retirement is some sort of end point, as it signals when someone will stop working. It is the moment at which they cease to be a productive member of society.
This is, however, increasingly being questioned in a world where people can spend 30 or even 40 years “in retirement”. If their useful lives end at 65, what are they meant to do for the next three or four decades?
It is becoming more widely understood that, for many people, retirement is a form of trauma. That is not simply because of the financial worry that it almost inevitably causes, but because of the emotional and psychological questions it raises.
Someone who is politely shown the door by their employer on the day that they turn 65 is hardly too old to function. They are hardly too old to add value to the world. Just by way of example, there are currently two men in their late 70s competing for the presidency of the United States of America.
Being forced into retirement is therefore distressing for many people. And this is why the very idea is being challenged more and more.
The value of work
“Retirement is a fabrication,’ says Anne Cabot-Alletzhauser, head of the Alexander Forbes Research Institute. “It’s a construct. It’s not real. It’s not like suddenly the bell rings and you no longer can function. In the next 20 years I suspect retirement will evaporate. We won't even hear the word.”
In the UK today, 85% of people are employed in the service industries. They are not down the mines or in factories, where a life of hard, physical labour will not only have taken its toll, but which is unlikely to have been enjoyable.
Many people in the modern world take great satisfaction from their work. As financial author Mitch Anthony says:
“We tend to underestimate the value of work in our culture. We’re actually living in a renaissance age where a lot of people are doing work that they enjoy. There are aspects of work they love to do and it’s hard to walk away from.”
A different take on retirement planning
Being employed is not just about earning a living. It provides mental stimulation, social stimulation, and a sense of accomplishment.
The problem, as Anthony identifies it, is that current thinking is mostly is that people retire from this. A much greater emphasis, however, should be placed on what they are retiring to.
This clearly has meaningful implications for financial advisers and financial planners.
A huge part of the profession is geared around the idea that everybody works for a certain amount of time, and then they retire. The big problem that every client needs to have solved is therefore to make sure that they save enough during the first part of that equation to sustain themselves through the second.
But more and more people are going to want to continue to work beyond retirement age in some form. They may even have the motivation to study in a new field. They will not want to sit at home and watch day-time television. They want to be productive and engaged and challenged.
Financial advisers and planners therefore need to re-think how they talk to their clients about retirement. What exactly is it that they are preparing their clients for?
It may be far more helpful to talk in terms of financial independence, than retirement. That way it is not seen as an end point, but really the start of something else. It is enabling, rather than restrictive.
“Having enough money to do what I want at the pace I choose, with the people I choose. That’s independence,” says Anthony. “And that’s the best thing money can buy you – the ability to do what you want with your time.”
Picture: Ravi Patel via Unsplash
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