Hesta van der Westhuizen, Advisory Partner, Citadel
For most people the word retirement creates a vision of doing what you want every day and not having to answer to a boss. For some closer to the D-date, the word leaves us with an uneasy feeling in the pit of our stomachs, knowing that we should have started saving earlier. And for young people the word is a very alien concept.
But “alien” is probably appropriate even for people less than 10 years from retirement. Futurists, or experts in future strategies, say we are at the cusp of changes in the world that could be as impactful as the industrial revolution. Technology, which is already changing at a scary rate, will change how we live in its totality.
Today when you sit down with your financial advisor to plan your retirement, we determine how long your capital should last by looking at your essential expenses on the one hand and your fun stuff on the other. Expenses usually include providing for boring stuff such as transport costs, electricity, and more recently a healthy chunk of money for data and other communication costs. Financial advisors typically assume you will be travelling more because you will have the time to do so. And that electricity bills will continue to increase with the plethora of appliances and gadgets we can’t seem to get by without. In addition, financial advisors provide for the cost of comprehensive medical aid cover, as well as medical costs not covered by medical aid and – just for good measure – a little bit extra for the medical costs we cannot even envisage. On top of that, we provide for the cancer of capital: inflation.
The fun stuff always includes a couple of overseas trips or very regular holidays. And certain of these are classed as essential expenses, given how the grandchildren are at times scattered all over the world.
But the futurists now predict that most of us will probably see a world where energy will become so abundantly available through sustainable and “green” producers that it might even be free – meaning we would not have to pay Eskom prices for electricity. The same goes for data: we will be connected through a worldwide blanket of free Wi-Fi. (Note: futuristic scenarios do not take into account the political landscape or Wi-Fi ever being available in the Karoo.)
Currently we provide for the purchase of at least two cars in retirement – seeing as you will have so much more time to go places. But what if car ownership will be replaced by car-sharing, where we will simply call a car when we need one and not incur the expense of a money-draining ornament standing idle in the garage?
Does this mean that we can reduce saving for retirement as we will need less capital given that we could well avoid or reduce the cost of many of the expenses we now incur?
The problem is that futurists and actuaries have for years predicted that we will live longer and longer. These predictions are no longer based on the expectation of longevity but on the proof of longevity. Doctors are already keeping us alive for longer; at a cost, of course. What if the standard life expectancy increases to age 120? This means that for most people that retirement will last for 60 years. And according to the medical profession it will be a much healthier retirement – thanks to developments such as gene therapy and predictive or personalised medicine.
This, in turn, could mean that the capital provided for the “fun” stuff will need to be much more than what we plan for currently, as your “fun” stage will last longer (as will your gym membership). Perhaps, instead of a trip to Europe, a trip to Mars will become a standard feature of retirement plans. But even if we might not be dependent on expensive fossil fuels to carry us on the future form of air travel, I do not think that the cost of planetary travelling will come down to a level where it becomes an insignificant portion of our “fun” budget.
With regard to medical expenses, the experts say that with genetic testing capabilities we would be able to predict very accurately what conditions a person might suffer from in old age. And I don’t just mean arthritis, for example, but the subtype of the subtype of that disease. With that information, the cost of one’s medical expenses in retirement could be more accurately estimated. This might not mean it will be cheaper, just more predictable. This could enable us to supplement our retirement capital with tailored risk cover products for medical expenses far more effectively than we do now.
The key question is: what level of inflation do we need to take into account for these futuristic expenses?
The fact is, the future of retirement expenses is but a small part of how we need to do retirement planning differently in the future. We need to plan our lives differently.
For starters, the most consistent, brilliant fund manager will not be able to stretch our retirement capital over 60 years; even if we diligently saved from the very first salary we earned. We all need to plan for another career phase between age 60 and 80. (And not just for the money, I for one cannot envisage 60 years of sitting on the stoep!) And I do mean “career”, not simply another job.
But the reality in the future (like the reality today) is that we probably will not be able to have a second career in the corporate world, even if that is where you spent your first. Another career phase would probably mean going back to study, or starting a venture which will require a substantial capital outlay. And our “retirement” – or adapted life plans – will need to make provision for this.
It is indeed a brave new world. To the future.
