In the history of man, retirement is a relatively new concept. Looking up the term in a dictionary, it defines a state in which people retire as they have either reached a predetermined age or are not healthy enough to continue working. This definition naturally leads to a huge variance of scenarios, but this divergence is amplified further given we probably have our own personal timeline as well.
Whatever that timeline is, we then need to look to the standards that society sets out. In the UK, as an example, that timeline has changed over the last few years, pushing the current state retirement age of 65 (available only until October 2020) up to 68 between 2037 and 2039, with no guarantees given that future changes will not be necessary. Even if you will not be planning to live off the state pension, it can be useful to cover the bare basics.
For those keen to retire early, a 2017 study from the University of Amsterdam will be welcomed as it suggested those retiring early could enjoy a longer life. The study focused on Dutch civil servants, with those taking the option to retire early 42% less likely to die within five years than those that chose to remain in work. I am sure that those who have felt pressure from work-related stress, which in turn can lead to hypertension and the risk of associated conditions, such as strokes or cardiovascular disease, can see the upside.
However, there were flaws as the sample for the research was predominantly male. While various other European studies have supported some of the perceived health benefits of retiring early, there is a considerable weight of conflicting research.
These studies flag the potential downside of leaving a stimulating, demanding and well-paid career, to ‘starting’ a life with less focus and, possibly, limited means of earning new income. Many people’s social lives revolve around work and once that timetable is removed, it can be more difficult to remain active and involved socially, and in turn avoid the resultant pitfalls of depression and low self-esteem.
The reason there isn’t a definitive conclusion from research is partially due to the sheer volume of potential scenarios, and we can all dismiss the results since many view research as lies, damned lies and statistics. It also links back to my first point that having a choice on when to stop working and embrace a life of leisure is a relatively recent concept.
The UK state pension and an official state retirement date were only introduced in 1908 with The Old Age Pension Act. In that year, only one in four people reached the age of 70, and people tended to die on average 23 years before ever reaching the official retirement age!
The chart below shows the official state retirement age and the years of anticipated pension pay out based on life expectancy at birth. The numbers have changed dramatically since 1908 and by 2016 people were spending an average of 24 years in retirement. The figure for 2018 shows a slight drop to an average of 21 years on a pension, but this is a result of the UK state pension age being equalised at 65 years for men and women in 2018.
Average years spent in retirement
So what does this mean for you?
The earlier you start to think what you want from your retirement, the sooner you can put in place a plan to achieve it. In addition, it is worthwhile seeing retirement as a new phase in life with new challenges and opportunities, and determining how to make the most of these. With this in mind, we believe you need to ask yourself three simple questions:
- What does retirement mean to me?
- How do I want to live?
- How much income will I need to achieve this?
The question missing here is how long will I live in retirement – a question no one can really answer even with lots of data to hand around your lifestyle and your family’s longevity. In reality, there is nothing you can do to guarantee a longer life, but there are steps you can take to ensure you get the retirement you wish for, however long it lasts.
We can work with you to answer your questions and help you make more informed financial decisions on what is right for you. Our cash flow modelling software helps you plan and adapt to real life events by highlighting whether your future income, from investments or other sources, will cover your anticipated financial needs. To find out more, please complete the form below, or contact your private banker or our client services team on +44 (0)1624 645000.
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Cameron began his career with Nedbank Private Wealth in July 2002 as a private banker and has more than 25 years of industry experience.
In his current role as head of private banking in Jersey, Cameron has responsibility for the local team building long-term relationships through delivery of excellent client experiences. He also maintains a number of client relationships, allowing him to hear first-hand of their needs and ensure our services evolve accordingly.
Cameron is also responsible for leading our relationship with Nedbank Private Wealth in South Africa, a key strategic partner for whom we provide international custody and banking services. Cameron is a Chartered Member of the Chartered Institute for Securities & Investment.