We have been told, countless times, that the average life expectancy of us humans continues to increase. The graph below shows this fact clearly and the implications affect us all materially. The biggest problem is that you may outlive your available retirement income.
People have made provision for their old age in various ways, some linked to cultural traditions such as having a lot of children to take care of their parents when they are too old to work and fend for themselves. Two other popular methods are to work very hard for 65 years during which you contribute to a retirement plan which is supposed to take care of you once you retire; or to build up a business which will continue operating long after you have passed away.
All of these methods have advantages and disadvantages. If you have a lot of children, you may struggle really hard to provide for and educate all of them and in a country with a very high unemployment rate like South Africa, they will most likely be unable to help you financially in your old age after all. If you slave away for decades, saving every cent you earn, you may have no time to enjoy the best years of your life and when you eventually retire, neither your body nor your spirit may be strong and healthy enough to enjoy the spoils of your efforts. The same scenario can happen if you build up a business during your life, and circumstances beyond your control may even cause you to lose it all at a very crucial stage later in life.
The scenario of everyone’s dreams is to find a passionate interest early on in life that generates tons of money and still provides you with unlimited free time – and that has no retirement date. But that is, unfortunately, not the prevalent or default scenario and most of us simply have to find some workable middle ground. It is human nature to want to be productive, active and relevant. That is why most of us felt ourselves going slightly insane during the first level 5 lockdown in 2020. Having to work is, therefore, not the problem. Most people want to be out there, doing something that keeps them busy and generates an income that can support their lifestyle.
Perhaps the best alternative for the majority of us, therefore, is to spread our bets. We know we may live for a very long time; so working hard for the first forty years of our lives, establishing ourselves and creating a habit of saving a healthy portion of our earnings, may be a good start. During this time, it is critical to adopt a lifestyle where your income always exceeds your expenditure and to avoid falling into the debt trap like the proverbial plague. During this period of forty years you will sacrifice your free time in favour of your employer or your business. Perhaps you will then be able to start spreading your wings a little between forty and fifty by putting a plan into place which will provide you with a passive income for your later years. This could be a tailor-made investment portfolio; renovating your house to create a rental space for Airbnb clients; or perhaps you have a hobby that you can monetize.
Between fifty and sixty you have to achieve a balance between work and play. By this time you are usually well-established in what you do for a living, which can translate into high-income years – the final push to guarantee a lifestyle in which you will be comfortable for the rest of your life. It will be a mistake to not start enjoying these productive years by sharing them with friends and family and ticking off some of those bucket list items. It will also be a mistake to not re-evaluate your financial plan. We have to ensure that you have reached a stage of financial independence before you make plans for your years after sixty. As we have said before, working is in our DNA and we all want to remain relevant until the day we die, which means the concept of retirement from all income-generating activities is not cast in stone.
For most of our clients their journey on the yellow brick road starts with a disciplined savings plan; followed by a lifestyle where income exceeds expenditure; and finally the implementation of a personalized investment plan instead of the more traditional business that will carry on long after they have gone.