Socio-economic Watch

Retirement dramatically changing, and might disappear

Retirement.jpg

The days of looking forward to comfortable retirement after years of productive work, is fading and might disappear as a social construct in the not too distant future.

 In an article, last week in Moneyweb, Patrick Cairns pose the question: Are you really going to retire? He also comes to the conclusion that the concept of retirement, which really only got established at the end of the 19th century by Germany’s Chancellor Otto von Bismarck for his armed forces, in a couple of decades “… may be gone.”

There is little doubt that over the last two decades or so, the content of, and expectation from retirement has changed, and in some respects even dramatically so. A number factors played a role in causing this transition to what increasingly looking like an age of “post-retirement.” The most potent of these factors is the fact that the average life expectancy has risen considerably in most countries across the globe.

At the same time, although it might vary from country to country, generally the retirement age has remained the same – the net result being, as per Cairns: ”Today it is quite possible to enjoy good health for 20 or 25 years after you retire, and you could live for another 10 or 15 years beyond that. In other words, you could work for 45 years, and need to support yourself for another 40 years from what you’ve earned.”

The global financial crisis of 2008 added another factor, putting pressure on stretching the average post-retirement lifespan: Many companies, seeking cost savings, are putting pressure and/or create ‘incentives’ for ‘older’ (more expensive) employees to retire early - replacing them with less expensive younger employees.

In the latter case, Black Economic Empowerment (BEE) programmes has exacerbated the tendency for whites post 1994 in South Africa.

Role of technology

Technological developments, like the so-called internet of things, has also played a role. International companies could centralise headquarters across international borders to single locations. Something that in a large countrylike South Africa also get replicated across regional borders.

In the media sector, for instance, media houses with various regional newspapers can now get by with only one political-, financial-, sport, etc editor, for several regional publications – something unheard of a decade ago. In the process a legion of senior journalists retired ‘early’ in recent years.

Another technological development, the so-called Fourth Industrial Revolution or FIR  – the ‘smart’ term for automation and robotics – also made a big contribution on this front.

Impact on society

Not quite realising the full extent of what was happening on the retirement front at the time, I some six years ago wrote an article for Blue Chip Magazine about the financial impact, at the individual level, of the general longer life expectancy.

The article, under the heading “Inheriting from the kids,” was inspired by the personal experience with my own mother, who lived to the age of 96. A ‘home-maker’ for most of her adult life, she not only outlived my father by 40 years, but also the ‘retirement provision’ they had made, by quite a stretch, and the children had to club in to look after her.

The transition society finds itself in, to an age, in the words of Cairns, where “… retirement as an event is falling away. At the age of 65 many people are still as mentally fit as they were at 20, and they need some sense of purpose to keep them going.”

According to him “as this increasingly becomes the norm, reaching ‘retirement age’ will no longer be seen as an endpoint. Instead it will be seen as a time at which we transition to a new kind of life, perhaps where we slow down a little or attempt something new, but one where we still see ourselves as working in some way.”

Caught in the middle

This, however is easier said than done. It is usually those caught up in middle of the transition phase from one socio-economic epoch to another, that bears the brunt of the disruption that almost without fail accompanies it

In this instance, spare a thought for the so-called baby boomers, the generation born in the 15 to 20 years after World War II, now between their early fifties – feeling the pressure for early retirement – and approaching their early seventies – trained and experienced in a bygone technological era, and outliving their lives savings.

Let’s illustrate it with a real-life case study of Mr. X who just turned 70. He had to retire early in his early fifties from his first career.

The retirement package included, what at the time, was a handsome pension, life-long medical aid membership, – to which he still has to contribute – and three retirement annuities to which he contributed for thirty years plus.

Mr. X, almost immediately on retirement, embarked on a second career, but employed as a temporary employee. However, the income added handsomely to his monthly pension.

And then, age 65 arrived. Mr X was told that it is the company’s mandatory age for retirement, and laid off.  

Five years later, and 18 years after the original pension kicked in, inflation has eaten away at least a third of the pension’s purchasing power, 10% of it goes towards the medical aid contribution, and of the annuity payments from a lifetime of savings, two thirds go to the receiver of revenue because it is just enough to lift Mr. X into a higher tax bracket.

To add insult to injury, government is now planning to take away the tax rebate for medical aid contributions.

Many baby boomers seem to be caught between a rock and a hard place.

However, there are also the success stories. Like another friend, who turned a life-long hobby, making wood furniture, into a successful business and a second career. It would seem that the sooner retirement planning becomes planning and preparing for, a second – later life – career, the better the change for a comfortable, and dignified phase in the final days of life.  

by Piet Coetzer

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