“Is retirement an idealistic industry-driven concept or is it really the picture-perfect period of peace and reflection worth striving for as a ‘natural progression’?” asks Patrick Barker, Private Client Portfolio Manager at Cannon Asset Managers.
In most countries, the concept of retirement is relatively recent, having been introduced during the late 19th and early 20th centuries. Until then, short life expectancy and the lack of financial provisions (pensions) meant that most workers continued to work until death. Germany was the first country to introduce an old-age social insurance program, in 1889, and thus the notion of retirement.
If we look back at this period, the early 1900s saw this concept developing from almost deliberate invention. A variety of interest groups wanted to move older people out of the labour force so as to accommodate younger ones. The age of 70 was determined as being the “retirement age” and it was later reduced to 65. Manual labour dominated the working environment and it was not expected that one would live beyond age 63. As life expectancy grew, this evolved into the youth subsidising the pensions of the elderly.
The social security system in the US was established around exactly this fact. People would pay towards this in taxes but seldom benefit because they never lived long enough. In 1937 when the system began in the US, there were about 20 workers paying an annual tax of $30 to support each retiree. By 2011 when the first baby boomer turned 65, there were about two workers per retiree paying an annual tax of up to $15,000.
Living beyond 400?
Nowadays most work is mind and knowledge based and with medical technology, people are living longer and longer. As an aside, it is expected that children who are born after 2033 could live beyond 400 years old. We have already identified more than 60 genes responsible for our aging and there is enough evidence to suggest that living for thousands of years is possible. Dr Aubrey De Grey, Chief Science Officer of the SENS Research Foundation believes that the first person to live to 150 years has already been born and the first person to live to 1000 is likely to be born less than 20 years after that person reaches 150.
As we gain a better understanding of how to manage our physical health, and as better medical technologies are developed, life expectancy will increase. For example, scientists are working on a sunscreen pill by reverse engineering how coral reefs protect themselves against the sun. 3D printing is already being used to create artificial body parts – developers are working on a machine that can print skin directly onto a burn victim – and soon you will be able to go to the dentist and have your mould printed there and then.
This poses both a financial and psychological challenge, and places a different perspective on how you plan your life. If we believe that retirement is invalid as a concept and that we should retire when we cannot work anymore, perhaps our planning process will change. How much we accumulate and need to accumulate changes and how we invest changes.
After further lowering the retirement age to around 60, countries have more recently extended it because their social systems cannot fund retirees. Work contracts are starting to be re-structured to accommodate longer working terms. In addition, far fewer people can afford to retire now, given a lack of planning or understanding of inflation, compounded by the fact that people are living far longer than their money lasts.
Waking up with a purpose
How should we deal with these realities? What about waking up with a purpose? There is enough evidence now to support the notion that life is purpose driven. Research conducted among communities which have been unaffected by “modern civilisation’’ has focused on their long life expectancies. The main reason that is put forward for such longevity is that the elderly all have a function in the tribe and therefore wake up every day with a purpose.
There are many stories of people retiring and passing away soon afterwards, or becoming so dis-heartened with life that they end up depressed and lonely. This has been attributed mainly to a lack of purpose and a disconnection from what they have known all their lives. This is based on the belief that everyone has a purpose or reason to be in the world which is the foundation of some philosophies and religious doctrines.
Will we become more of a community-based world in which we use the wisdom of age to synergise with the energy of youth? Will employment agencies emerge that cater for the 65-plus market, placing people into companies accommodating their ability while working shorter hours? Perhaps we will realise we have less of an unemployment problem but rather an employment problem, because we refuse to acknowledge the wisdom of trained and experienced older people. In numerous countries this is starting to change, which will be encouraging to many. Employment agencies are emerging with a focus on the over 60s and placing people in positions that accommodate their energy levels and abilities. An example of this is contracting people to work three days a week for five hours a day and rotating this to fill the time completely.
How should the financial services industry respond?
Should the financial services industry continue to tell investors the story about retiring and putting their feet up knowing that this possibly does not serve their best interests? Or should it expand their awareness and edify their validity in society by encouraging them to plan to be in a position to retire but to aim to carry on contributing to society? This would certainly result in solving the financial problem of living longer or having not provided enough for forced retirement and it would also provide people with a quality of life until they cannot contribute anymore.
Although the current system of retiring relatively early in life appears morally questionable and psychologically devastating for many, what is extremely encouraging is that the industry is becoming more aware of these challenges and the subsequent opportunities that arise from a simple change in thinking. And the person in the street is sure to follow suit and embrace this shift in thinking by gearing up for a longer working life and better investment planning.
At Cannon Asset Managers, we believe that investors must plan to be in the financial position to retire, taking into account longer life expectancies, but that they could aim to work or contribute to society until they are no longer able to. Education of our clients is a vital component of our strategy and we continue to highlight this with them. Working in conjunction with the client’s wealth planner, we encourage investors to understand what growth they will need from their investments to provide enough capital for their future. In this regard, we have a variety of options for private clients that aim to accommodate all their needs and help them realise their objectives. These options are flexible and designed to move with the times.
This article was supplied by Cannon Asset Managers, a niche investment management company that applies the philosophy and principles of value investing.