While this may seem a bit unbelievable, the advances we are seeing in medicine and diet, plus the adoption of much healthier pastimes and exercise regimes, has definitely led to longer life expectancies.
Jacques Brown, a wealth manager at Private Client Holdings, said that added to this was the fact that socio-economic conditions had also changed. People were getting married and having children later than the previous generation. Children were staying dependants for longer than before as entry into the job market had 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,” advised Brown.
“Added to this, returns on investments have decreased from before. We do not see the same returns on the average balanced fund as before 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. This also means that people in retirement have to tighten their belts.”
According to Brown, in the financial planning industry there are algorithms, formulae and electronic tools that are used to help people plan their finances so that they can save for retirement, the aim being that they don’t run out of money in retirement.
“For that we ask them at what age they would like to retire, what their savings amounts are and what income is needed in retirement. We then use certain assumptions, such as inflation and growth rates, to work out whether the client will have enough to retire or not, and manage expectations.
“However, the challenge here is factoring in ever-increasing life expectancies. From a financial standpoint people will have to work for longer in order to save for a longer retirement - the seventies are the new sixties. I would imagine that future generations would then have to work into their eighties to save for their retirement.”
If we take a typical professional person who leaves school at the age of 18, studies, takes a gap year, starts earning enough money at the age of 28 to start saving and has a new life expectancy of 108. If they were to retire at the age of 63, that means they only have 35 years to save for 45 years of retirement.
“I’m reminded of some clients of mine, years ago, who were in their nineties and down to their last savings.
“The client said to me ‘I simply never thought I would live to be this old’.”