When we look at people and how they view themselves getting older, very few really believe most people are living longer these days. One of the reasons might be the fact that they realise that if they live that much longer they will have to fund this longer lifestyle and they realise they haven’t made enough provision. More on this later.
We are possibly heading for a perfect storm in relation to longevity. There are a couple of factors at play that if all work together might just create this perfect storm.
The first factor is the fact we do live longer than our predecessors. One hundred years ago somebody at the age of 65 would be dead for almost 10 years already. Now being 65 is the new 55. I remember that I started consulting clients at a well-known retirement village almost 30 years ago when the average age of the residents was 68 and today it’s 84.
Some scientists are predicting that with modern technology people will easily live to 150 years in the near future. This does not bode well for the average person as most people are totally unprepared to live this long.
The second factor is the fact that people are not providing enough for their retirement as many want to spend more on a lavish lifestyle. It was during the years just after the great depression that people realised they have to provide for their futures. Back then most employees worked for the same employer for at least 40 years resulting in access to pension and other retirement funds. Today the average person changes jobs 6 times during their lifetime, and very few preserve their saved-up pension or provident fund benefits.
So, because people want to live for the moment, thus contributing less than they should toward their pension benefits and don’t preserve their pension benefits upon resignation or retrenchment they have too little provision upon retirement. If you take normal retirement at age 65 as the norm and people will easily live to a hundred years your saved-up capital has to last 35 years in retirement. Some employers’ retirement age is between 60 and 65 and this compounds the problem even further.
The third factor is the fact that people are terminally underinsured. Various life assurance companies have done studies resulting in the fact that South Africans are underfunded in terms of life cover and medical disability to the tune of one trillion rand.
The result of this is that families could be destitute when a breadwinner dies prematurely or become medically disabled. If this happens to families and they lack enough provision the urge is there to dip into retirement savings that compounds the dire situation upon retirement. Many families also dip into retirement savings to provide better education for their children, but not being able to calculate the damage done to retirement provision.
The fourth factor is the fact that investors view their investments on-line too frequently, resulting in incorrect changes to portfolios as a result of short term volatility on investment markets. This normally happens at the wrong time and switches are normally made to money market type investments.
When all these factors are taken into account it is not too difficult to see why we are heading for the perfect storm. It is all the more important to have an individual plan or blueprint adapted to your specific circumstances and to stick to this plan through good and bad times. A robust portfolio is created to do well in good economic times and to provide some protection during downturns of the stock market as well as through proper asset diversification.