Forget retirement and start thinking out of the box!
The latest Sanlam Benchmark Survey on retirement reveals that the average retirement savings balance for a person of the age of 37 is only R90 000, and the average for millennials (people between the ages of 22 and 32) is R40 000.
This is quite astounding! So, here is the reality check: if you are a middle- or upper-income earner and your life savings by the age of 37 is the grand total of R90 000 or less, you can remove the word ‘retirement’ from your financial plan.
To catch up that deficit in just 20 years would require both substantial increases in the amount you save each month, as well as above-average returns from the stock market. Add to this the fact that millennials are going to live on average to the age of 90 or even beyond, and it would be fair to say that for this age group, retirement is officially dead.
But before you give into despair, here is the good news: retirement as a concept is pretty much dead for everyone. We are living way too long, and to fund 30 years of retirement from our monthly salaries would be a significant challenge, even if we saved from our first paycheque. So, we need to start thinking very differently. The good news for millennials is that being far more tech-savvy and future-orientated, they will most likely adapt more easily to this no-retirement future.
If you are an under-funded millennial (or 37-year old) this is what you need to start doing.
Start thinking of longevity
It is unlikely you are going to have enough money to put your feet up at the age of 60 or even 65 and watch the daisies grow – but more importantly, why would you want to? You are most likely going to live for another 30 years past the traditional retirement age, so start thinking about longevity in your career or starting a business or investment that can produce an annuity income that, over time, can make you money with less of a hands-on approach.
There are several ways to do this:
Start a side business: This could be anything from selling jewelery to owning Uber cars. You may have a skill that allows you to supplement your income over the weekends. Depending on the business, this could either provide you with some additional income which you can start to invest, or it is the type of business you can grow and eventually make fulltime.
Understand the “gig economy”: The world of permanent employment is also changing. More and more organisations are hiring contract and independent workers for short-term contracts – hence the description “gig economy”. This is particularly true in the technology, communication and media sectors. This is fantastic news for someone who wants to be independent and not stuck at a desk all day, and is happy in the virtual world. If you embrace the contract world and your skills can be applied virtually, you can do a gig for any organisation in the world from your home. The move into a more tech environment will be the saving grace for extended careers. While you may not want to be stuck behind the same desk until the age of 75, there is no reason why you cannot still be working and earning money by using technology to access your clients.
Upskill: Make sure your skills remain relevant. The skills required today may be redundant in ten years’ time. Do research into the type of skills in your sector that are growing in demand. If you are planning on starting your own business, start researching, learning and saving. In fact, any entrepreneurial and business marketing skills are going to be invaluable in the gig economy.
Stop trying to find “quick-fix” solutions
There is nothing wrong with getting involved in managing your own money, in starting a trading account or even learning about forex – but don’t think this is going to solve your lack of savings. Over time the amount of money you have will mostly depend on how much you put away and for how long. Be very wary of promises to “double your money” or “reveal the secrets of the market”.
Go back to the basics of financial management and stop living off debt and spending more than you earn. This will keep setting you back and you will end up tapping into whatever savings you have accumulated. It will also keep you enslaved to a paycheque when what you really want is to go out on your own. In a gig economy, no-one will survive long with big debt repayment bills.
Don’t ignore the power of saving and investing over time. While you may not be on track to give up work in 20 years, a good nest egg will supplement your income in later years, giving you flexibility and career longevity as you can then work less for longer. A nest egg also gives you choices and flexibility ‒ it allows you to take the risks to live your passion. Debt does completely the opposite.
In short, start thinking about financial planning differently: think about how you will stay relevant, invest in yourself and think of ideas which will allow you to earn an income in your later years.
This article first appeared in City Press.