We have all heard "50 is the new 40". It may be truer than you think. The world over people are living longer. Although longevity is a positive, financial behaviour combined with other knock-on effects of a longer life have to be considered.
In 1980, life expectancy was 61.7 years, shown in a study published in The Lancet. In 2015, the average person is expected to live to 71.8 years. While longer life is a compliment to positive progress for humanity, it does bring other challenges. Some of them: being healthy while living longer and having enough savings for those extra years in retirement.
"Adequate income in retirement has been an ongoing concern with only 6% of South Africans being able to retire comfortably. Now that people are living longer, they spend as many as 26 years in retirement compared with a previous average of 19 years. This means the funds they have, besides it possibly not being sufficient to cover expenses, may also not stretch far enough," says Craig Sher, head of research and development for Discovery Invest.
People tend to live beyond their means, have debt and leave retirement savings for last. Although longevity is a positive, financial behaviour combined with other knock-on effects of a longer life have to be considered. As people age, they often need additional healthcare. Sher says, "Recent estimates show that by 2050 up to 2 billion people will be older than 65. Where in 2015, there are four people working for every one retired or inactive person, by then two people will be working for every inactive person. People in this age group also use around three times more medicine and healthcare services. The cost of which erodes available retirement savings."
The reality of the gift of longevity is that many will outlive their retirement savings, and will do so in poor health - affecting individuals, families, communities and governments. It is crucial to take action to encourage better health and better savings behaviour to ensure we are equipped for a larger ageing population. "Trends show as many as 2.2 billion people will live beyond 100 by 2050, and based on this trend South Africa will have 10 million pensioners by then. This means there is an urgent need to change the culture around saving and health promotion," says Sher.
Change the savings culture
South Africans have a poor culture of saving. That has to change not only for the benefit of the individual living longer but for the economy overall. The vast majority who save, put away less than eight percent of their salary and as many as 69 percent cash out their savings before retirement, according to a 2015 survey.
Considering longer life expectancy and increased healthcare needs, you need to put away a reasonable portion of your income and start early. An early start will give your investment the added growth benefits of compound interest. "Careful financial planning with the help of a financial adviser is indispensable, especially for retirement savings. It is advisable to shop around for solutions that can meet extended needs in retirement. There are solutions in the market that offer greater returns and incentives when you look after your health and apply responsible withdrawal behaviour. Options that convert unneeded life cover to retirement funds to support a longer life expectancy are also available,"
Preparing for the future of ageing and living longer
The world is focusing on longer lifespans and how it affects employment, financial services, and cities. China is already employing technology to assist their ageing population with financial services and healthcare. Brain health in old age is high on the agenda, and factors that keep the mind sharp are physical fitness, not using tobacco and education among others. With a healthy lifestyle and early, adequate provision for retirement, it may be possible to live a long, healthier life with retirement savings that outlive you. Be prepared.
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