I read a couple of articles in today’s Financial Times weekend, which got me thinking on the concept of retirement, careers and the prospect of getting older.
Being 36 and a half, I’m still some way off retirement, but time seems to speed up significantly the older you get, and the concept of retirement starts to occupy a bigger piece of your mind the older one gets.
In the first article by FT columnist Moira O’Neill, she talks about “the retirement smile” concept. This is where new retirees typically tend to spend more in their early retirement years (65-70) as they enjoy the newfound free time, ticking off bucket list items and have the energy and health to engage in pleasurable activities; they then spend less in their middle retirement years (70-80s), once they settle into retirement, doing less globetrotting and more “pottering around the house”; and then they tend to spend more again in their later retirement years +80, as medical needs and costs tend to escalate.
She quotes the Pensions and Lifetime Savings Association (PLSA), which estimate a single person is comfortable with about £43,100 income per year whilst a couple require £59,000 per year. Roughly speaking, based on a 5% annual return on pension assets, this equates to around £862k to £1.2m in assets. Presumably this figure assumes the retiree has paid off their mortgage. It models certain assumptions such as a weekly meal out, replacing kitchen and bathroom every 10-15 years, running a small car, and having several holidays per year.
These figures seem reasonable for two thirds of the retirement phase (65-80), but for the +80 phase, is when costs can escalate dramatically. She says the average weekly fee for a residential care home is about £950 per week, and £1,267 for a nursing home bed. These are scary numbers. Although the article goes on to say that actuarial studies estimate that one in four men and one in three women over 65 will have substantial care needs at some point in their lives.
In my view, the above retirement concept is the traditional model which most people tend to follow. Work and save into a pension for your working life, then at 65, retire and use your savings to do things you wanted to do whilst you were younger. Back in the days when companies offered defined benefit retirement packages, I think this system worked well. You spent your career with one company, and the quid pro quo was they looked after you once you got to retirement, on your last salary level, until death. However, with most companies moving to a defined contribution system, your retirement pot is based on how well your pensions have performed over the years, and your company has no further obligation once you have reached retirement. In other words, the onus is more on how the employees save and invest their pension.
Does this call for a different approach to the concept of retirement? Tim Ferriss wrote of the “Mini Retirement” concept in his 4-hour workweek book in 2007, where you take several regular mini-retirements throughout your career, rather than one retirement after work, where you learn new things, experiment, travel. I am a keen proponent of this. I see some of the benefits include:
- Being younger and stronger, you are able to do more demanding travel (such as hikes) compared to being older;
- It is easier to travel on a budget when younger than older (hostels, low-cost flights etc).
- Having enriching experiences and meeting interesting people along the way has to have more upsides than downsides
- A reduction in the 65-70 “spending uplift” during the early stages of retirement, since the retirement concept is not a novelty, and you will have done many “bucket list items” already
- Learn new hobbies at a young age, so you are not scrambling to learn it at an older age. I started to learn how to play bridge last year, and intend to play this regularly
Ageism in the workplace
The second article I read was by Undercover Economist Tim Harfard in the FT Weekend Magazine, where he talks about the very real issue of ageism in the workforce, and how most managers will not employ people over the age of fifty, preferring to hire younger people. Harford cites several pieces of literature which focus on late bloomers, or people who have done great things at an older age in life. Examples include Rembrandt, Fleetwood Mac, Wendy Cope, Julia Child, Vincent van Gogh. Also Trump, Biden and Trump again have occupied the most powerful position in the world at around 80 years. These people spent years experimenting and figuring out what they like and where their talents lie, before doing great things at an older stage in life. Van Gogh as purportedly a dealer, teacher, missionary, bookstore clerk and a pastor before becoming a full-tie artist.
He cites David Epstein’s book NY best seller Range, where the author compares the English and Scottish education system, where English students tend to specialise earlier on, whilst Scottish students specialise late. Although the English students get ahead earlier in life, many of them tend to realise they went down the wrong path too early, and have to start again.
Ageism is a real thing. I have met people in their 50s and 60s who have lost employment with a company for whatever reason, often having been there for many years, only to find themselves “obsolete” and “unwanted” in the workforce. The loss of income, dignity, and having something to do, can be incredibly disconcerting.
My learnings from this are the following:
- A company owes you nothing after you leave. It is up to you to ensure that you stay upskilled, networked and “in-demand” so that you can find sources of work outside of formal employment should the need arise
- Building up a side-hustle can be an incredibly important source of earnings and dignity for the dry periods when you are out of work
- Try to build your own source of self-employment/company, so that you aren’t forced into mandatory retirement at 65
Concluding thoughts
As technology and healthcare evolve, we may see increasing levels of longevity, whereby 65 is considered young.
How do we feel about retiring from the workforce at this age? Have we got enough assets to get us from retirement to end of life?
If we lose employment later in life, how do we feel about this in terms of the loss of income, dignity and engagement?
Personally, retirement is a scary concept for me, and I feel like I’d want to work for longer than 65. But many companies have mandatory retirement policies which forces people to take retirement upon reaching a certain age.
My learnings and my aims include:
- Take mini-retirements during younger years – I have been to 61 countries, and intend to visit many more over time, to have enriching, awe-inspiring adventures
- Build up a consultancy business with great clients – I am working with Toyota Financial Services currently, a subsidiary of Toyota Motor Corporation. I couldn’t have asked for a better first client to work with.
- Build up a diversified all-weather portfolio, split suitably between equities, fixed income and real estate, delivering a net annual return to fund passive income needs
- Continue to build and maintain skills – having a skill such as coding, AI, accounting is so important, compared to having a general degree. Skills get jobs.
- Build the network – I am always interested in a conversation with new and existing people, from a broad range of career paths.
- Develop hobbies now rather than waiting for retirement – I started to learn bridge last year, find it really stimulating and intend to continue.
- Look after health – try not to become the 1 in 4 men/1 in 3 women requiring nursing homes later in life. A few areas to increase the probability is to: avoid drinking & smoking, maintain a suitable weight, eat healthily, exercise.