Is 30 the new 65?

Sixty five, that is the line in that sand that government has handed down to retirees. At this age, retirees should be making plans to enter the second phase of their lives in order to create space for a younger, dynamic workforce.

This age was based on old assumptions and a retirement model that is fast becoming irrelevant within today’s context. Longevity is becoming a major game changer and some retirees’ most productive years may be at an age when they are expected to hang up their hats. 

World leaders

The concept of retirement is being rethought on a global scale. Many countries have amended their retirement age to 70 while other countries have created platforms whereby the skills of retirees are retained within companies on a consultancy basis. While this is on a part-time basis, the key issue is that these skills are not lost to the industry. 

Speaking at the recently held Money Summit, Wynand Gouws, a Wealth Manager at Gradidge Mahura Investments, points out that there are many examples of successful businessmen and world leaders who broke the mould when it comes to retirement. 

“At 85 years old, Warren Buffet still runs the world’s biggest investment firm, Berkshire Hathaway. His second in command, Charlie Munger, is 95 years old. Nelson Mandela (although there are extenuating circumstances in this case) only became the President of South Africa at 77 years old. These are world leaders in their field pushing the boundaries when it comes to retirement,” said Gouws. 

At the tender age of 69 years old, Richard Gere had his first child with his wife Alejandra Silva. Couples are starting families much later in life. This has a significant impact on retirement. 

Modern realities

While working until 65 and spending between 10 and 15 years in retirement was a previous reality, the modern reality is vastly different. 

Healthcare has advanced so rapidly over the past decade that if there is a couple that are living together, and both are 65 years old, the likelihood is that one of the pair will live until they are 90. 

Are we saving enough money during our working life to cope with this reality? “What happens during the process of saving for retirement? Do clients need to save for 20 or even 30 years in retirement?” asked Gouws. 

All is not lost

It may seem as if we are painting a picture of challenge that will be very difficult to overcome. However, Gouws pointed out that clients need to realise that if their life has been extended by 30 years, there is also a longer time horizon when it comes to saving. 

This is where the power of compound interest comes in. Albert Einstein once labelled it as extremely important saying that those who understand it earns it, and those who do not understand it, pays it. 

This forms the basis of two very important decisions that can be made on retirement day. When a retiree receives their pot of cash from their retirement fund, they should put it into an investment that earns compound interest. This is effectively putting an effective plan in place for the next 25 years of their life. 

The second decision that needs to be made is that retirees need to work fastidiously towards decreasing their levels of debt. “Just as compound interest doubles an investment on a yearly basis, debt can also double if it is not cut down to the bone,” said Gouws. 

A primal urge

One of the things that retirees need to overcome is the human propensity towards instant gratification. 

Pioneered in the 1960s by a Stanford University psychology professor Walter Mischel, the marshmallow test leaves a child between the age of 3 and 5 alone in a room with a plate containing a single marshmallow. The researcher leaves the room telling the child that if they can resist temptation and not eat the marshmallow before they return, their marshmallow count will double. 

Almost all the children that participated in these tests throughout the years could not resist temptation and immediately ate the marshmallow. Instant gratification is a primal urge. 

"Retirees have worked hard over their lifetime and may well want to use their pot of cash to buy a holiday home, a boat or go travelling. However, this decision needs to be offset against the need to reinvest their cash for their future," said Gouws. 

Russian roulette

A lot has been written in the media about clients becoming more educated when it comes to the financial services industry. While this is generally seen as something that is very positive, it can cause some challenges. 

“Clients simply do not understand the cyclical nature of the market. They are very happy to invest their money when the market is up but want to run for the hills when the market is down. This is also complicated by the media who cause panic by releasing news that can sometimes be regarded as fake. Every market has highs and lows, it’s the performance of the investment during this time that matters. Hopefully the investment will grow significantly during good times and not lose too much value over tough times. Noise does not matter if a client is invested over a 30 year horizon,” said Gouws. 

Editor’s Thoughts:
Thirty seems to be the magical number when it comes to retirement. It is likely that a client needs to plan for 30 years in retirement and that this can be achieved if an investment remains untouched for the same period. Is 30 is the new 65? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.