It is important to familiarise yourself with issues around planning for retirement. Picture: REUTERS
It is important to familiarise yourself with issues around planning for retirement. Picture: REUTERS

Retirement is a word that can instill fear if you are financially or mentally ill-prepared or it may be something you are too young to be bothered about, or you think you may never reach that age. But will you actually ever retire - and should you? Should your goal instead be financial freedom?

Many countries, including some in Europe, the US and Australia, have gradually increased the retirement age to 67 or 68 and are now questioning whether retirement is still relevant.

Americans have coined phrases such as "rewirement" and "refirement" to describe a time of life when you can leave formal employment and reinvent yourself in a new job or as a volunteer.

But there doesn't seem to be enough attention being paid to adapting traditional retirement and retirement ages in a world in which longevity is bringing about a massive demographic shift to older populations.

Rocco Carr, business development manager for Glacier, which is part of Sanlam, gives some idea of what longevity means for your retirement: a couple aged 65 today have a 50% chance of one of them reaching the age of 94.

There is also a 25% chance - a staggering one-in-four - of one of them living until 100, he says.

With medical and other technology advancing at a brisk pace, life expectancies will continue to rise, he says.

The chance that you or your spouse might live to 100 means you will have to plan for your retirement savings to provide an income for you for 35 years - almost as long as your working life.

It becomes increasingly difficult to imagine how 40 years of contributing a small percentage of your salary - typically no more than 15% - will provide an income at retirement that lasts for almost as many years.

Then consider how most of us will study for longer, travel or possibly only begin working well after the age of 25.

Or we may start working at that age - but with student debt to pay off.

Earlier this year, MFS Investment Management in Boston conducted a survey that showed that 80% of millennials (those currently aged 21 to 36) and 70% of Generation Xers (aged 37 to 51) have either delayed or said they expect to delay a major life event, such as having children or buying a home.

In most cases, their finances were the reason for the delay.

Having children late in life, who study for longer and then struggle to find employment, creates a high likelihood of you not being ready to retire at an employer-chosen age, especially if it is before age 65.

Buying property later in life or never buying an appreciating asset can also create a drag on your ability to save for retirement.

The rise of the so-called gig economy where employers, an employer-sponsored retirement fund or a retirement age are foreign concepts is another reason to rethink the feasibility of saving for retirement.

What if we gave retirement funds or savings accounts a new name that reflected the goal of financial freedom?

And we defined that goal as one to be achieved by degree: first, becoming debt-free and ensuring you could buy protection against loss of the ability to generate an income, then a life stage where your investments give you greater freedom to determine how you supply your labour and, finally, for a stage where your passive income from your investments replaces all or most of what you can earn by working.

Whatever you save, you will achieve some degree of success on a path to financial freedom, instead of constantly falling short of a retirement goal.

A financial-freedom goal may also be relevant for many South Africans who have more pressing needs than providing for their old age or who do not expect to reach retirement age.

Alexander Forbes's head of research Anne Cabot-Alletzhauser urges in a recent article in Collective Wisdom that South African financial institutions and employers should consider allowing employees to save for a number of long-term goals in the way that Singapore has allowed its citizens to use its Central Provident Fund.

These long-term goals could include funding for your housing, for education, healthcare financing both before or after retirement, retirement, investments and for income protection and protection against longevity, she says.

Cabot-Alletzhauser says that to really see the benefit of saving, you must be able to use your savings during your financial life to improve your financial wellbeing and build assets. As the Harvard Business Review put it in a headline more than a decade ago, "It's time to retire retirement".

Retirement policy needs a rethink.

Tax-incentivised retirement funds remain your most advantageous savings vehicle but they do not offer you access to your savings except on resignation or retirement.

But they do now enable you to keep your savings invested long after an employer-chosen retirement date.

This gives you a little more flexibility to consider your long-term savings goals and the lifestyle you want to lead in the second phase of your life.

Du Preez is Money editor at Tiso Blackstar

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