Going Broke in Retirement
I want to suggest that it is time to re-think retirement age. We have all found out someone’s age and were amazed how good they look, totally convinced that they were 10 years younger than they really are. We are living longer and healthier, but as a society we are still thinking that 65 is a reasonable retirement age. I want to challenge the idea that 65 is a practical age to quit work and to push our expectations further out.
Let’s look at some statistics. I know stats can be boring, but stay with me. 1965; the year the Canada Pension Plan was created.
- Average life span; 71.87 years
- Average male; 68 years
- Average female; 74 years
- Six-year difference between sexes
Fast forward to 2002
- Average life span; 79.5 years
- Average male; 77
- Average female; 82
- Five-year difference between sexes
Seeing these numbers our concept of aging and retirement age is 48 years out of date. We must ask ourselves what we do as a society the same way we did half a century ago.
For some historical perspective, the concept of retirement is relatively new. As western culture became more urbanized in the late 19th and early 20th century, more manufacturing jobs were created. As a result employers were less willing to accommodate aging workers. Because older employees refused to give up their jobs to younger and faster workers, the idea of mandatory retirement had spread to remove them from the workforce. By comparison, on the family farm, , the more strenuous tasks were passed to the younger generation but no one “retired”. Retirement became a tool to deal with the strains of the inefficient, slower, older workers. Not only did this obsession with efficiency become a business truism, it became a societal one also. By 1920, 43% of white males in the U.S. were unwillingly no longer in the workforce. For a more complete history, check out “A Brief History of Retirement in America”.
This is not to suggest I believe retirement is an idea that should disappear, but our attitudes about it should evolve. Think about the amount of time you expect to spend in retirement. Is it 15 years? 20? 30 plus? If we consider that many people with a four year university education don’t meaningfully enter the work force until age 22 (in many cases it’s later than this) and we retire at a standard 65, that’s 43 years working. If you are to live to age 100 that’s 35 years retired. Do you believe you have the earning power to pay for retirement for 45% of your adult life?
And don’t think living to 100 is out of the question. According to The Guardian in 2009, 50% of Britons born today will see their 100th birthday. At least 50% of babies born in 2007 are expected to live to the following ages:
- 101, Denmark
- 102, Germany
- 103, UK
- 104, Canada, France, Italy, United States
- 107, Japan
So what’s the answer? A financial plan needs to become like a tailored suit; adjusted to you and your circumstances with the ability to adjust given your circumstances. The days of looking for a balanced mutual fund to “buy, hold and forget” are limited. Financial advisors and chartered accountants need to understand structure and planning more than ever. And forget about blanket statements like “you need $1 million to retire”. Even if you think you have the ability to retire at age 65 or earlier, make sure you have the right professionals working for you.
It’s very exciting to me that we are going to be leading healthier, longer lives than ever before in history. Just make sure you have a financial plan to accommodate our new reality.Sources: www.nationmaster.com www.statscan.gc.ca www.thenexthill.com www.theguardian.com The Lancet