Gen­er­a­tion X and re­tire­ment

Will this be the gen­er­a­tion to re­de­fine re­tire­ment?

Finweek English Edition - - COLLECTIVE INSIGHT -

mem­bers of Gen­er­a­tion X – those born be­tween 1965 and 1979 – are hit­ting mid­dle age and are slowly be­gin­ning to take over the lead­er­ship po­si­tions in busi­ness and so­ci­ety. What ex­pe­ri­ences moulded this gen­er­a­tion and will con­tinue to af­fect their at­ti­tude to­wards life, work and re­tire­ment?

GenXers grew up dur­ing a time of ma­jor so­cial and tech­no­log­i­cal change. The 80s and early 90s were a tur­bu­lent and some­times vi­o­lent time in South Africa dur­ing the strug­gle for free­dom. This gen­er­a­tion ex­pe­ri­enced changes in fam­ily com­po­si­tion with HIV/Aids, ur­ban­i­sa­tion and di­vorce al­ter­ing tra­di­tional fam­ily re­la­tion­ships and sup­port net­works.

As a re­sult, many see this gen­er­a­tion as more au­ton­o­mous and self-re­liant than their par­ents. How­ever, fi­nan­cial fam­ily obli­ga­tions still weigh heav­ily on many South Africans, es­pe­cially those who have man­aged to achieve greater fi­nan­cial suc­cess than pre­vi­ous gen­er­a­tions.

This gen­er­a­tion is also un­like their par­ents when it comes to re­tire­ment sav­ings. For some fam­i­lies, it will be the first time that the el­derly will not need to rely on the old-age state pen­sion. For oth­ers, the type of pri­vate pen­sion they can look for­ward to is very dif­fer­ent to that of their par­ents. When GenXers en­tered the work­force, tra­di­tional de­fined ben­e­fit pen­sion funds were mak­ing way for newer de­fined con­tri­bu­tion re­tire­ment funds. This places South African GenXers in the un­en­vi­able po­si­tion of be­ing a lit­mus test for how well th­ese new de­fined con­tri­bu­tion funds can de­liver on mem­bers’ ex­pec­ta­tions.

While re­tire­ment has been off the radar for most GenXers, it is now be­com­ing vis­i­ble on the horizon and re­tire­ment re­al­ity will start to bite dur­ing the next decade. GenXers will need to face the fact that the re­spon­si­bil­ity and risk of fund­ing for re­tire­ment rests squarely on their shoul­ders.

How­ever, at a time when GenXers are en­ter­ing their prime in­come-earn­ing ca­pac­ity, sav­ing for re­tire­ment is of­ten tak­ing a back­seat to man­ag­ing high debt lev­els, fi­nan­cially sup­port­ing age­ing par­ents and un­em­ployed fam­ily mem­bers, pay­ing for their chil­dren’s ed­u­ca­tion and high med­i­cal costs. In­stead of be­ing in con­trol of their fi­nances, this gen­er­a­tion of­ten spends more than they earn. The 2017 San­lam Bench­mark Sur­vey found that fi­nan­cial stress peaks be­tween ages 41 and 45, im­pact­ing on GenXers’ abil­ity to boost sav­ings. Their big­gest source of stress is short-term debt like car pay­ments, credit card debt and per­sonal loans. The sur­vey also found that less than half of GenXers are able to meet their debt obli­ga­tions all of the time.

How­ever, the sur­vey also found that fi­nan­cial stress de­creases closer to re­tire­ment, per­haps in­di­cat­ing that hav­ing the chil­dren’s ed­u­ca­tion bills be­hind you buys some fi­nan­cial breath­ing space.

Fi­nan­cial in­de­pen­dence means that GenXers no longer have to rely on an em­ployer to pay their monthly salary, but can rely on their ac­cu­mu­lated sav­ings to pay them a monthly in­come for the rest of their lives.

De­spite all the neg­a­tives, could GenXers be the gen­er­a­tion to re­de­fine the con­cept of re­tire­ment and re­tire­ment age, rather work­ing to achieve their fi­nan­cial in­de­pen­dence? Fi­nan­cial in­de­pen­dence means that they no longer have to rely on an em­ployer to pay their monthly salary, but can rely on their ac­cu­mu­lated sav­ings to pay them a monthly in­come for the rest of their lives. A re­tire­ment date then be­comes an out­dated con­cept, giv­ing way to a much more flex­i­ble and fluid un­der­stand­ing of phas­ing out of em­ploy­ment through con­tract or part-time work (af­ter leav­ing full-time em­ploy­ment) rather than a sud­den and com­plete break in em­ploy­ment. As GenXers, many of us have a per­sonal ex­am­ple of what re­tire­ment un­der­pre­pared­ness looks like in the form of a de­pen­dant par­ent(s). Be­havioural fi­nance tells us that the eas­ier it is to re­call an ex­am­ple of some­thing, in this case fi­nan­cially un­pre­pared re­tirees, the more likely we are to pri­ori­tise our own re­tire­ment sav­ing. That said, it is dif­fi­cult for any­one to ig­nore press­ing fi­nan­cial needs of close fam­ily to save now to en­sure that we don’t end up in the same po­si­tion. This is es­pe­cially true in SA, where par­ents tra­di­tion­ally cared for their chil­dren and ex­pect re­cip­ro­ca­tion of this care when they are in their old age.

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