How to fund your skydiving trip on your 100th birthday
For many years financial advisers have been dutifully informing their clients that they have to save around 15 to 20 percent of their pre-tax incomes for 25 years in order to fund retirement. The assumption was, that in general, people would live for around 15 to 20 years after retirement age. The reality is that this advice is no longer relevant, as more and more people are living longer and healthier lives. Reaching the age of 100 used to be an extraordinary achievement, now it’s just another birthday.
Deon Nel, head of financial consulting at Standard Bank, says: “Living past our retirement funds is a reality for the majority of the population. Most people do not have the funds to live 10 years after retirement let alone 40 years. If you are like the majority of the population you may have decided to wait until your mid to late 30’s to start taking saving seriously and this means you will be playing a game of catch up”.
Experts studying the science of aging are taking a hard look at the biological process- one which looks at aging as a condition that can be manipulated, treated and delayed. By taking this view, new drugs are being created to fight age-related diseases. David Gems, a bio-gerontologist who spoke at a conference on aging in London recently, said we will soon be able to “turn back the clock.” In short, living to the age of 130 is a distinct possibility.
Aubrey de Grey a biomedical gerontologist and the chief science officer of SENS Foundation, a charity dedicated to combating the aging process is focussing on research that “targets the accumulating and eventually pathogenic molecular and cellular side-effects of metabolism that constitute mammalian aging and the design of interventions to repair or obviate them”. That might seem rather complicated and unrealistic, but the bottom line is that we are making headway and reaching the age of 150 is set to become a reality.
So imagine hitting 65 and having 85 years of life to fund with existing retirement funds?
Nel says: “While this sounds like science fiction, living beyond 80 or 90 is not and the message we can all take from this is – start saving as soon as you start earning. Under 60% of pensioners expenses exceed their income.”
If you have waited until your mid-forties to start your savings plan, you may have to kick into “emergency mode”. You will not have had the benefit of compound interest on your side and you are also in a danger zone when it comes to retrenchment.
The good news is that our improved health will enable us to work longer than the usual 65 years, so we need to adjust our brain to accept that we should and can work to the age of 70 or even 80. This means that you theoretically have time to save for the day when you no longer want to work.
The first step to get your emergency plan on track is to think about what kind of retirement you want: Do you want to work in your retirement years? Where will you live? And how will these decisions affect your retirement financial planning? Once you’ve got a notion of your retirement lifestyle, you can start to figure out what it’s going to cost.
Now comes the hard part. You’ve got to save more but how? One way is to automatically have a regular amount deducted from your checking account, this will ensure that savings becomes a priority. The old advice about shifting more of your money into ultra conservative investments as you reach retirement no longer holds. That’s doubly true if you’ve got some catching up to do. This does not mean taking risky decisions but a basic bank savings account might not be the best option here.
Nel says it is vital to talk to a financial planner to assist with finding the right financial solutions for your objectives. She also suggests that you evaluate your budget and see where you can cut back. You will be surprised to see that when you examine your spending habits, many inefficiencies come to the fore.
“There is no doubt that being short of cash in retirement is not the most pleasant situation to be in but knowledge is power and you will be able to change the outcome. You just need to take that first step and chat to someone who can help you craft a plan,” adds Nel.