Retirement planning is for the young

MIRAH LANGER

After all, if younger people can find money for cell phones and data every month, so too should they be putting away money for their future, proposes the financial expert.

“The reality is that it should be termed securing your future, because without doing it from a young age, it’s very difficult to make it up when you are older. The longer you leave it, the more extreme the amount needed becomes. It can become totally unaffordable.”

Society is going through some seismic shifts, that require people to rethink how they prepare for the future, both in their world of work and beyond into retirement.

“The definition of retirement today is very different to what it was in our parents’ or grandparents’ generations.”

A few decades ago, people would retire at 65, and most did not live much beyond 75. Therefore, it was easier to ensure that a pension would provide for the timeframe needed.

“Now medical technology is advancing at such a rate that people are living longer overall. The number of people reaching 100 is going up exponentially around the world,” says Rabson.

The outcome of this means that in the future, people might spend as many years in retirement as they did in their work life.

Furthermore, as the world of work changes, it will no longer be sufficient to get a degree and then think you are guaranteed a job for the next few decades. As more jobs become redundant through automation and other advances, people will continually have to retrain for new roles.

What it comes down to is simply that people need much more money to navigate these kinds of working and retirement realities.

Gary Kayle, the co-founder of Worth, a financial education company, concurs with Rabson that when it comes to retirement, it’s all about the money.

“It boils down to some very simple mathematics. You need to be able to create your own pile of money so that the day you stop working, the very next month, you draw a salary and you cover your living expenses. You will need to do that throughout your retirement years.”

“Financial planners are very skilled at being able to help you select the right products and put together a proper estate and retirement planning schedule. The only thing they aren’t given in their careers is a wand,” says Kayle.

“You can sit in front of the best financial planner in the country, but if you don’t come to that meeting with a reasonable cashflow to invest in retirement and financial-risk protection such as through life cover, dread disease, and disability cover, there is nothing a financial planner can do for you.”

A financial planner will help choose the best type of investments for a person’s individual needs.

Rabson says this kind of professional perspective helps mitigate against making emotional decisions such as buying property out of the country as a core retirement asset.

“It’s great if you are using spare funds,” he says. However, if a person is dependent on this property for funding against liabilities that cost rands such as medical expenses, then it doesn’t make sense. The logistics of turning the property back into liquid cash and bringing the money across countries will be very difficult.

Kayle says people need to focus on the present state of their financial affairs to best prepare for the future.

“What it boils down to is that debt levels are way too high, spending is way too high, and the amount of planning that takes place is almost non-existent. Unless you get that right, you will hurt yourself.”

On the positive side, says Kayle, his experience in educating people in financial literacy has shown that these problems are solvable, and change can take place quickly.

“It doesn’t matter what your role is in the family, whether you have managed money or not managed money, at some point in time [on retirement], you are going to have to live on your investments. You are going to have to know how to manage them, build them, and draw from them without damaging the amount [you will need] to sustain your lifestyle.”

When it comes to making smart financial choices in the present to preserve the future, Rabson gives the example of how when people change jobs, they often choose to take the money from their previous company’s pension funds and spend it.

“We need to train them not to do that. They have to preserve the money otherwise they will then be starting from scratch again.”

Both Kayle and Rabson caution that even once a person hits retirement, they need to continue to exercise restraint in their spending.

“Take what you need, but don’t start hammering your fund. We need to encourage people to draw down responsibly once they are in retirement,” says Rabson.

Ultimately, with careful planning, there is much to be upbeat about, says Kayle.

“You have got financial planners who are more skilled than they have ever been; you have financial instruments that are more advanced than they have ever been; you have access to knowledge that was not available to consumers 20 years ago in terms of transparency. There has never been a better time.”