I am not a student of statistics but I am an avid student of observation and interpretation. I like to keep things simple in my own mind, so I have categorised the age group around me into two very simplistic categories. The first is what I term the traditional retirees. They seem to be those who are looking forward to retirement, intend to retire at age 65, and assume they need about 60% of their current inflation adjusted income plus a debt free house in order to have a comfortable retirement. I suspect these people have not applied much science to their retirement assumption – it just seems to be the normal thing to do and they seem to have come to this conclusion based upon the consensus approach of their friends and what they read in mainstream publications. The other group is where I sit. This group does not have a stipulated retirement date, we seem to think we are bullet proof and sickness will not enter the equation and we can sell some of our assets to give us income when we need it. In my specific case, I think I am going to work to age 75 but by then, I might only be working three days per week. I have no idea what I would do in retirement, I enjoy working and being busy and I keep hearing the threats of my wife (married over 30 years) “Don’t think you are going to retire, then hang around here and annoy me and think you can run the house like you run a business!” For me, the concept of retirement is scary!
Over the past few weeks, I have been working on the content for the annual Finology conference. This year, the conference theme is “The aging revolution” and I must say, it is fascinating. The research I have been trawling through and the amazing people I have been talking with is quite special but also somewhat frightening. It gives you an insight into what your life could be like in the future, what choices can be made now and what the implications are of those choices. It is like watching a TV programme where people are transported into the future and can observe what they are going to be like in 20 years time. The amount of literature on ‘aging’ is phenomenal and the secret is to get clever people to put it into words and pictures that I can understand and take action on. That’s what the Finology conference will do this September.
One concept I want to share with anyone who is approaching retirement or into early retirement ie: from 50-70 years of age, is what the Milken Institute 2013 Global Conference calls “the spans.” This is the inter-relationship between lifespan, health span and wealth span.
Firstly lifespan. The first thing one needs to do is work out how long one intends to live. We can all look at the mortality tables and Statistics Department figures and work out the average age of death. However, I am ‘me’ so I want statistics that apply to me and not to the ‘average’. Statistically, as a NZ male, I will die at age 81 but what about the investment I have made all my life to keep fit, keep my weight correct and not drink and eat too much of all those really yummy things that I so much want to eat and drink more of? That led me to www.mylongevity.com.au. This is an excellent website where for free, you can answer a set of questions that will determine your longevity. I have spent time with the creator of this website and his questions are based on defendable methodology and there are tens of thousands of people who have completed the 2-3 minute survey.
The good news is that based upon the longevity survey, I am destined to live to age 94, so I have 40 more years to go. If I retired at age 65 like many of my mates, then I would need to fund almost 30 years of retirement plus I have a wife who is two years younger and has lived a totally stress free life (that’s what I tell others when she is not around) so I would need to provide money or assets for her as she is likely to outlive me. Most New Zealanders have not planned for a 30-year retirement and cannot accumulate a sufficiently large lump sum to fund the desired lifestyle. This means that if they are going to live to my ripe old age, then they need to be looking to live off income and capital in retirement plus possibly sell the house and move in with the kids - time for many of us to get friendly with the kids again!
Now comes health span. This is working out how healthy you are likely to be in your latter years. The cost of hospitalisation and surgery is horrendous and if we get a major disease or illness, then statistically we may get a relapse in the future. Most insurers will tell you that well over 50% of lifetime medical expenses are incurred after the age of 60 years. As we age, the cost of medical insurance jumps exponentially so that sucks a huge chunk out of retirement income. If we decide to ‘self insure’ then our healthiness is critical. We could easily spend over $100,000 in retirement, funding surgery where our desired quality of life determined we needed to have elective surgery rather than wait for the public hospital system to do the job for us. In my case, I have hammered my body with running, motorbiking and other excessive sports in an effort to stay fit. Combine that with living to age 94 where body parts will naturally wear out, and for me, I may need to be budgeting $200,000 in hospitalisation and surgery between now and age 94. Also as a male, my tolerance to pain is not great (according to my wife) and I just want to get things fixed when they happen rather than wait ages for the public system. The other thing with health is that you need to be healthy to keep working and my retirement is based on keeping working to age 75. Therefore, I have realised that one of the most important investments we can make is in our health and fitness so we can continue to work longer, stay healthier longer and not erode capital on medical services.
The third part is ‘wealth span.’ This is determining the amount of wealth we will have in retirement. Wealth is a relative thing and to me it is not so much the quantum of money you have, but your attitude to life that really defines wealth. We obviously need to have a decent sum saved up when we enter full or partial retirement. Your financial adviser can help you determine what that amount would need to be. However, we also have to be prepared to enjoy that money and spend it along the way. There is no point being the richest person in the graveyard so there is nothing wrong with eroding the capital base to supplement the income flow that may come from your investments. A financial adviser will help you there as well. The other form of wealth we need to personally work on is what I call ‘life wealth’. That’s the effect we have on ourselves and others we associate with. If we continue to exercise, avoid obesity, eat healthily, retain a very active mind, laugh frequently, maintain a strong social network and maintain a sense of ‘self worth,’ then we will be just like the age old adage - “healthy, wealthy and wise.” Enjoy the journey of life.
David Greenslade, BA, MBA, Dip Mgt, Dip Bus Studies (PFP), AFNZIM, MInstD, AFA, is the managing director for Strategi Ltd and Strategi Institute Ltd and the founder of the annual Finology Conference.