Ques­tion­ing how we think about re­tire­ment

“But that’s the way we’ve al­ways done it!” is a state­ment that stops us from adapt­ing as the world changes. The con­cept of re­tire­ment as we know it needs to be turned on its head.

Finweek English Edition - - COLLECTIVE INSIGHT - By Petri Gre­eff

awhile back I heard an in­ter­est­ing story that brings to mind the dan­gers of in­sti­tu­tion­al­is­ing spec­i­fi­ca­tions. I’ll share parts of it with you to help you see why this res­onates with me. The US rail­road is four feet and 8.5 inches wide. Why? It was built by the English, who also built the tramways us­ing ma­chin­ery de­signed for wagon-wheel spac­ing. They used this ma­chin­ery be­cause this was the spac­ing of the old wheel ruts of long-dis­tance roads in Europe that were built by Im­pe­rial Rome many cen­turies be­fore. The orig­i­nal ruts were first made by the wheels of Ro­man war char­i­ots which were de­signed to be just wide enough to ac­com­mo­date the rumps of two war horses. Dur­ing all that time no one ques­tioned the think­ing be­hind this and it con­tin­ued for cen­turies!

Now, if you are as con­fused as I was, let me ex­plain how horses tie into re­tire­ment. I can­not vouch for the au­then­tic­ity of this story, but it high­lights that what may have been rel­e­vant for a spe­cific rea­son years ago, i.e. the width of two horses’ hindquar­ters, is no longer rel­e­vant to­day.

Speak­ing of in­ter­est­ing sto­ries and ir­rel­e­vant rea­sons brings me to the July edi­tion’s theme of Col­lec­tive In­sight – Rethinking Re­tire­ment. The ar­ti­cles pub­lished in this edi­tion ques­tion the think­ing be­hind what we have come to ac­cept as the norm in the re­tire­ment in­dus­try. For ex­am­ple, why should we in­vest our hard-earned salary into a ben­e­fit we will only re­ceive af­ter we re­ally need it? Why should we re­tire at 65 when we may in the fu­ture be re­tired for longer than we have ever worked? Why did we de­cide that when we re­tire, we should sit on the stoep and watch the world go by?

Again, the horse story comes to mind and is ap­pli­ca­ble to our cur­rent re­tire­ment par­a­digm. Why? We con­tinue to fol­low the spec­i­fi­ca­tions for this par­a­digm that was set 130 years ago in a dif­fer­ent en­vi­ron­ment, for a dif­fer­ent gen­er­a­tion. Th­ese spec­i­fi­ca­tions may be com­pletely ir­rel­e­vant now.

So, let’s re­think re­tire­ment. To help us, we have in­vited some of the in­dus­try’s best minds to share their (re)think­ing on re­tire­ment. We re­ceived a num­ber of ex­cel­lent ar­ti­cles chal­leng­ing ex­ist­ing think­ing and are ex­cited to share a se­lec­tion of them.

This edi­tion kicks off with an ar­ti­cle by Mark Hawes of Alexan­der Forbes on page 18. He pro­vides an over­view on how the re­tire­ment par­a­digm was cre­ated. He points out that the re­tire­ment age back then was be­yond the av­er­age life ex­pectancy of the pop­u­la­tion. Iron­i­cally, the per­son cred­ited for con­cep­tu­al­is­ing this par­a­digm out­lived his own ex­pec­ta­tion by 18 years!

On page 21, San­lam’s Danie van Zyl and Natalie van Zyl fo­cus on how Gen­er­a­tion X is deal­ing with re­tire­ment prepa­ra­tion. As this gen­er­a­tion en­ters its prime in­come-earn­ing ca­pac­ity, sav­ing for re­tire­ment of­ten takes a back­seat to man­ag­ing high debt lev­els and other fi­nan­cial obli­ga­tions. The lat­ter in­cludes sup­port­ing ag­ing par­ents and un­em­ployed fam­ily mem­bers, pay­ing for their chil­dren’s ed­u­ca­tion as well as high med­i­cal costs.

Turn­ing to page 24 and Michael Falk from Fo­cus Con­sult­ing Group pro­vides in­sight on whether 65 is still rel­e­vant as a re­tire­ment age in mod­ern times. He sug­gests re­tir­ing to, in­stead of from, some­thing that is longer than a few months in du­ra­tion. If you don’t have some­thing in mind, then don’t re­tire or you could end up sim­ply be­ing un­em­ployed.

Sim­i­larly, Deon Gouws from Credo Group be­lieves in the im­por­tance of find­ing a job you en­joy do­ing. It’s a bet­ter al­ter­na­tive to re­tir­ing pre­ma­turely and tak­ing the sub­stan­tial fi­nan­cial risk that comes with it, he writes on page 26.

Shaun Le­vi­tan and Costa Economou from Colour­field share their view on how to re­place our in­come when we re­tire. On page 27, they talk about the im­por­tance of com­mu­ni­cat­ing in “in­come” so that it high­lights to mem­bers whether they are in a bet­ter po­si­tion than they were at the start of the re­port­ing pe­riod.

We also in­ves­ti­gate some in­no­va­tive re­tire­ment ideas that re­quire a bit more de­vel­op­ment.

We con­tinue to fol­low the spec­i­fi­ca­tions for this par­a­digm that was set 130 years ago in a dif­fer­ent en­vi­ron­ment, for a dif­fer­ent gen­er­a­tion.

Nthabiseng Moleko from Univer­sity of Stel­len­bosch Busi­ness School points out that the ex­ist­ing prod­uct range, from prov­i­dent or pen­sion funds, are suit­able for the for­mally em­ployed sec­tor. How­ever, they ex­clude low­in­come house­holds and the in­for­mally em­ployed masses, who are the same in­di­vid­u­als most likely to seek state sup­port in the medium to long term. In do­ing this, they heav­ily bur­den the fis­cus and fu­ture gen­er­a­tions. She also dis­cusses some novel ideas around mi­cro plans for pen­sions on page 28.

On page 30, Stan­lib’s Kevin Lings finds rad­i­cal new ways to fund re­tire­ment. Th­ese in­clud­ing link­ing for­mal re­tire­ment sav­ings to a phys­i­cal prop­erty that you live in for many years to cre­at­ing men­tor­ship roles for re­tired em­ploy­ees through a tax de­duc­tion on their re­tire­ment in­come.

Pro­fes­sor Lionel Martellini from the EDHEC Busi­ness School pre­dicts that the new fron­tier in re­tire­ment in­vest­ing is mass cus­tomi­sa­tion. He writes that new ways need to be found to pro­vide a large num­ber of in­di­vid­ual in­vestors with mean­ing­ful ded­i­cated in­vest­ment so­lu­tions. (See page 32.)

Wrap­ping up this edi­tion on page 33, Anne Cabot-Al­let­zhauser from Alexan­der Forbes ar­gues that for in­di­vid­u­als to re­ally en­gage with their long-term sav­ings plan, they need to be able to lever­age their ac­count re­sources at strate­gic points along their fi­nan­cial life cy­cle. She be­lieves that an ef­fec­tively-struc­tured ben­e­fits pro­gramme could be a pow­er­ful frame­work for cre­at­ing a tar­geted fi­nan­cial plan­ning tool that as­sists South African em­ploy­ees.

We trust you find the in­sights as thought-pro­vok­ing as we did and that they shift your re­tire­ment par­a­digm. Happy read­ing. ■

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