Tough love on retirement thinking – why you’ll have to do it on your own

A lot of people think the reason an official retirement age exists is because people deserve a break by then.

In fact, the concept of an official retirement age came to life in 1889, when Germany’s ‘Iron Chancellor’ Bismarck declared 65 years as the age that Germany would begin paying workers a state pension. Bismarck’s motives were as much political as altruistic. While his flash of inspiration won over the German working class (and quashed the rival Socialist Party) Bismarck also knew that after a life of back-breaking hard labour, the average German worker never reached 65. And of those who did, most didn’t live much longer. The shrewd Iron Chancellor knew the German state of 1889 could afford to meet the cost of those few pensions.

We live much longer now. Average life expectancy today is 82 years (and it’s longer for women). Yet in most countries the official retirement age is still stuck at 65; a number irrelevant to the realities of our medically advanced world of aging populations:

• More than 10 million people alive now in the UK will live past 100
• 40% of all Japanese will be older than 65 by 2055
• 17% of the European population will be over 100 years old in 2080
• The number of humans living to 100 has doubled every decade since 1950

And unlike Bismarck’s Germany, today’s developed nations are financially on their knees under the burden of soaring national debt: of every dollar of American public spending, 40c is borrowed. Indebted governments simply won’t be able to continue financing the state pensions of their aging populations – the maths just does not work. This message needs to get through.

French students protest the increase of state retirement age from 60 to 62.

In Britain, for example, far too many people are still counting on a state pension:

• 430,000 fewer Britons set aside any retirement savings in 2010 than in 2009
• 25% of Britons older than 55 have no personal savings for retirement
• Ditto 47% of all working British women.

Americans are at least being more realistic. In a recent survey, only 5.3% of Americans still think the Government will provide their income in retirement.

Those of us living in non-welfare states in Asia and Africa have known from the get-go that a state-financed pension has never been on the cards. And nobody believes that mandatory retirement provisory schemes, such as Hong Kong’s MPF, will suffice (the highest required monthly contribution to the MPF is HKD 1,000, which is roughly the cost of dinner and wine for two on Hong Kong’s Hollywood Road).

So, forewarned is forearmed. You’re going to have to make sure you’ve earned, saved and invested enough to finance 15 – 20 years of living after you’ve stopped working. To put it another way, you’ll need to make sure that your savings across a thirty year working career are sufficient to cover twenty years of spending without working. That simply will not happen by saving cash, a fact you’ll know from a glance at the meagre interest accrued on your bank statement this month. Across the world, everybody’s beginning to feel the pinch of real inflation for the first time in decades.You have to – intelligently and constructively – focus on investing for solid, ongoing long term growth on your savings.

This is not an enjoyable topic to write about, and it’s a tough message to read. But it’s also not the kind of thing you want to find out about twenty years too late.

Wealth Advisory of the Year 2010

The Philippa Huckle Group was thrilled to receive the Outstanding Achiever award, Wealth Advisory of the Year, at the 2010 Benchmark Wealth Management Awards.