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.
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. ■