75 really is the new 65

In the past 25 years the world has seen the ageing of society, medical advances and, of course, an increase in longevity.

This means that the traditional notion of working until 65, and then retiring to cruise the world, has had its day.

The new reality

The reality is that South Africans are not putting enough money aside for retirement. Because taking the money that is really needed today and saving it for the future is never easy. It is always assumed that there is enough time to play catch up later.

It is estimated that only 6% of South Africans will afford to retire comfortably. Just as importantly, we are living longer, healthier lives and see no reason why we should stop working just because society expects us to.

In fact, a recent study by Nick Buettner found that working longer may actually be good for our health and life longevity.

So either by choice, or out of necessity, we are working longer than ever before. 75 really is the new 65 and this has two crucial implications for our financial planning.

Holding the plan together

The reality is that one day your client will retire and the quality of life he or she will have is often a function of how much has been saved throughout his or her working life.
If your client’s income comes to a stop, even temporarily, will he or she still be able to afford to save for retirement or continue to pay any risk premiums on top of all the other regular expenses. Failure to pay any insurance premiums could leave your client without any cover at exactly the time he or she is the most vulnerable.

Consider this example:

• A 40 year old male earning R50 000 per month and putting aside 10% of his salary each month for retirement;
• He has an accident that keeps him from earning an income for three months;
• These three months of lost income ‘cost’ him a massive R2.5m in retirement savings;
• He has got two choices to get back on track – accept 16% less income when he comes to retire or work an extra 16 months past his retirement to make up for the lost value.

FMI’s claims experience suggests that 7/10 people will experience an illness or injury that prevents them from earning an income during their working career.

This means that protecting his or her income should be your client’s first priority - their entire future depends on it.

Risk must reflect retirement reality

It makes no sense to select a disability or critical illness benefit which stops at 65 when your client is likely to work past that age. Your client does not want to be left uninsured, and uninsurable, at 65 if he or she is not financially secure.

There are important questions to think about. Does your client’s risk cover allow him or her to increase their retirement age if they are forced to work past it? Does your client’s income protection allow him or her to select a retirement age of 70, or even better, 75?

It is critical to carefully consider this often overlooked aspect of risk benefits in financial planning.

Your client’s retirement planning and risk benefits are inextricably linked and risk benefits need to adapt to today’s reality.

Some South African statistics

• The Global Retirement Index 2015 rates South Africa as the 21st worst country in the world in which to retire.
• South Africa has one of the lowest savings rates in the world.
• 50% of South African pensioners live on less than R3800 per month.
• 70% of people will have at least one temporary disability during their lifetime that prevents them from earning an income.
• 25% of all working South Africans support their ageing parents as well as their old children.
• 66% of pensioners still have dependants that rely on them financially.
• Only 25% of those aged between 18 and 30 are saving for their retirement.
• The average length of time for a temporary disability claim is three months.