When do you think you will retire? What will you do when you retire?
Two of the questions most asked by financial planners when helping their clients think about how much income they will need when they stop working.
I would argue that a more relevant question now is – “what is ‘retirement?”
With life expectation increasing and final salary pensions being enjoyed by less and less of the population, the traditional model of education, employment then retirement will soon be unrealistic for many of us.
In their book, ‘The 100 Year Life – Living and Working in and Age of Longevity’, Lynda Gratton and Andrew Scott use an example of a male born in 1971, who has a life expectancy of 85 and who wants to retire on 50% of his final salary at age 65. They calculate that this gentleman would need to save over 17% of salary every year of his working life. Savings rates in the UK are nowhere near this level so what is the alternative? Either live on less income or work longer?
The reality for many in the short term is likely to be one of these options but increasingly I agree with Gratton and Scott that we will see a change to this three-stage life.
In his 1989 book, ‘The Age of Unreason’, Charles Handy spoke of the reinvention of work as a portfolio of wage work, fee work, homework, gift work and study work. This was in relation to what he saw as the changing structure of organisations. However, in my opinion, such a restructuring will be forced upon individuals, as much because of increased longevity as any organisational change.
In reality, I don’t believe we need to look too far to see this change happening already. Searching recently for a piece of artwork, my wife and I found work online by a local artist. It transpired that this individual had worked in public service for 40 years before ‘retiring’ and starting to earn a living from what has been a lifetime’s hobby. They swapped wage work for fee work. Only one example but how many other items online, in local gift shops or at craft fairs are produced from a similar source?
So, what is the implication of this for my profession – Financial Planning? If the traditional three stage process is replaced by a more fluid existence of the different forms of work set out by Handy, how do we help in that planning process? In my opinion, three key areas are education, products and planning.
Firstly, I believe we have a responsibility to help educate. The Personal Finance Society ‘Discover Fortunes’ programme, which involves financial planners going into schools, is a great start but cannot reach nearly enough children. Adding personal finances to the basic school curriculum is surely the only way to start to make a real difference.
Secondly, we can influence product providers (traditionally life assurance companies but increasingly supermarkets, and in the future, who knows?) and our regulators to create simple, flexible, easy to understand and cost-effective ways for individuals to save – the latter point being at least as important as the rest. Transparency of costs is essential, and individuals need to be allowed to keep as much of their return as possible if saving is to be a credible option for long term planning.
The third and last point is planning. Technology will no doubt play a part and the successful financial planning firms of the future will combine an ability to allow clients a range of options, from access to self-select DIY planning tools to ‘face to face’ advice if required.
Of course, it is not only the financial profession that has a responsibility to help individuals understand and adapt to this new norm. Increased longevity has even more profound impacts on governments, both national and local, and the services they currently provide. The sooner we have a co-ordinated approach, the better for everyone – but who will take the first step.
So, what will you do when you retire?
This article was published in the Herald on 21 September 2019. Click here to read the article.