Save capital in world with less surplus
Jacques Brown
The advances we are seeing in medicine and diet, plus the adoption of much healthier past-times and exercise regimes has led to longer life expectancies.
Socioeconomic conditions have also changed. People are getting married and having children later than previous generations. Children are staying dependants for longer as entry into the job market has become increasingly difficult. Day-to-day living expenses have escalated.
This all puts strain on the average person’s ability to save. Costs associated with retirement, such as retirement homes, electricity and groceries have also escalated and, of course, medical expenses climb as we age.
Added to this, returns on investments have decreased. We do not see the same returns on the average balanced fund due to tepid returns on the local and world markets, as well as low returns on property investments.
This would mean that people saving for retirement have to save more capital in an environment where there is less surplus income. People in retirement have to tighten their belts.
In the financial planning industry algorithms, formulae and electronic tools are used to help people plan their finances so they can save and don’t run out of money in retirement.
However, the challenge is factoring in increasing life expectancies. From a financial standpoint people will have to work for longer in order to save for a longer retirement – the 70s are the new 60s. You would imagine, then, that future generations would then have to work into their 80s to save for their retirement.
However, if we take a typical professional who leaves school at 18, studies, takes a gap year, starts earning enough money at age 28 to start saving and has a life expectancy of 108.
If he were to retire at age 63, he only has 35 years to save for 45 years of retirement. It does not matter what formulae or assumptions you’re using in the planning, it may be an impossible task to save to that extent.
From a planning for “eventual” retirement perspective, it is important to focus on quantifiable goals.
PCH follows a goals-based investment philosophy where our clients determine clear lifestyle goals they want to afford during their working years; like a comfortable retirement, international holidays, second homes, private school fees, a legacy, and etcetera.
This allows for focused investment planning and to clearly lay out the order of prioritised goals and bespoke investment strategies to guide clients on a journey to achieve those goals.