Let’s be honest — many of us harbour a secret fantasy of living forever. If we could stay healthy and function intellectually, endless life would allow us to share in succeeding generations’ joys, witness unfathomable technologies, and assess whether our lives made a lasting impact on the future. Even shy of immortality, a longer life seems desirable, if it can be lived well and if we could afford it.
Today’s retirees can expect to spend more years in retirement than the entire lifetime of people living a few centuries ago. To borrow from a recent MoneyWeb article by Patrick Cairns…
For your grandparents, a ‘ripe old age’ might have been 85. For your parents, it could be 100. For you, it may be 120. If you retire at 65, can you really afford to live off your savings for another 55 years? That would mean being retired for longer than your working life. For how much of that period would you still be healthy enough to be reasonably independent? What would the medical bills of a 110-year-old look like?
With a longer life comes a greater risk of outliving your retirement savings, so it’s important to plan for more years in retirement. Investing involves market risk, including possible loss of the money invested. Post-retirement investing is made even harder by unexpected poor health.
The Pain of Reality
Unfortunately, the reality is that most South Africans will not be able to afford a longer period of retirement and may be forced to work well beyond their preferred retirement age. Too many South Africans lack adequate retirement savings and incomes, personal assets other than retirement savings, and easy-to-use employer-provided retirement plans. Longer retirements would involve stretching already inadequate resources over more years. Many of our citizens simply will not be able to afford a longer retirement.
Lower-income South Africans, particularly those whose jobs involve manual labour, are most likely to both suffer long-term health challenges that might inhibit work later in life, and to lack enough savings for retirement. Absent government intervention, their only alternatives to working past retirement age would be support from family or a lower standard of living funded only or largely by Social Grant Benefits. The problem though is that Social Grants were designed to replace only a portion of pre-retirement earnings, not to supply a living income on its own. There is no question that healthcare expense is a big concern for retirees. In fact, many studies suggest it is the biggest concern that retirees have. Instead of planning ahead, many find ways to limit their spending during retirement years to mitigate the worst of health circumstances.
It Could be You
Health problems do not discriminate between age and gender. Those who have been known to lead the healthiest of lifestyle could also fall prey to unexpected, life-threatening diseases. For those who are planning for retirement, healthcare is a huge expenditure to plan for on top of normal living expenses. Unlike travel, hobbies or entertainment expenses in retirement, medical expenses are non-discretionary.
Control over your plans – such as paying off the house, building up some savings and waiting for the kids to leave home – are thrown into disarray. There is a relationship between income and reported satisfaction with life; money may not make you happy, but it helps to be able to afford the necessities of life and a few luxuries.
If you are sick or injured, you need treatment. Having adequate reserves and a good medical coverage can be the difference between a comfortable retirement and one filled with financial challenges. It is critical that you take a hard look at what your medical expenses might be and factor these costs into your retirement spending estimation as well. It is important that we face our sunset years realistically.
There is no silver-bullet solution for this problem. One needs to save and save some more. Whatever you think you’ll need, it’s best to save even more. Low investment returns, inflation and increased life expectancy have combined to form an unwanted gift. It is a blessing wrapped in a curse, a wolf in sheep’s skin. An additional problem for those already struggling to merely meet their everyday basic needs. It only makes it worse to not plan for it. It means seriously thinking about what you are going to do if you simply don’t have enough money. Keep in mind that strategies can differ based on the age at which you retire. Speaking to a retirement investment expert, like myself, can help you formulate a strategy that considers both the long walks on exotic beaches and the countless nights recovering in hospital beds.