Those of a certain age who attended school when learning poems by heart was a must for all secondary school students must surely remember William Shakespeare’s amusing poem The Seven Ages of Man. Each stage describes a typical decade in the average person’s life.
Those who have reached the last two stages identified by the Bard must agree on how the years of retirement have changed over time. Many will disagree that today for most people in their 60s, “the sixth age shifts into the lean and slippered pantaloons, with spectacles on nose and pouch on side; his youthful hose, well saved, a world too wide for his shrunk shank, and his big manly voice turning again toward childish treble, pipe”.
Old age is not what it used to be. A few decades ago, most people retired when they reached 60. They generally had a decade of good health ahead of them. For most, their remaining ambition was to see their children take their place in life. The luckier ones lived in extended families, taking care of their grandchildren and then being cared for mainly by their daughters.
Political inertia and improving life expectancy in most countries has meant that no one can safely rely on the state pension and the loving care of their sons and daughters to make their retirement stress free. The retirement age will inevitably continue to be extended over the next few decades as short-sighted politicians secretly hope that older people still in employment will drop dead before claiming their state pensions.
Therefore, younger generations should start to search for the holy grail of retirement: good health and financial security. Going to church early every morning, sitting and gossiping in the village square with other retirees and watching TV programmes for most of the day no longer describes the lifestyle of most pensioners.
The International Longevity Centre (ILC) is the UK’s specialist think tank on the impact of longevity on society, and what happens next. It recently surveyed more than 6,000 people aged between 40 and 55 to determine how they plan for their retirement. The results of this survey are sobering and should make Generation X, and indeed younger generations, aware of the daunting challenges they face if they ignore the need for financial planning for retirement.
Assuming that good health favours an active retirement, younger generations need to focus more on hardwiring financial security in retirement in their current lifestyles
The national state pension in the UK is about €11,000, not significantly different from that paid to Maltese pensioners. I would argue that lifestyle preference and spending habits are pretty similar in most developed economies. So the results of the ILC survey would do an interesting reading for Generation X Maltese.
Twenty-eight per cent of those interviewed for the ILC survey will mostly rely on the state pension to fund their retirement or don’t have any pension savings at all. Only seven per cent are saving enough – defined as 21.3 per cent of salary – for a moderate lifestyle in retirement.
The ILC identifies three lifestyles that retirees would typically have to adopt. The ‘minimum standard of living’ lifestyle is indeed Spartan. It is enough to cover basic living costs but not enough for individuals to have financial security and the flexibility to do what they might want to do.
The ‘modest standard of living’ is the lifestyle between the minimum and moderate standard of living. It can be achieved if people save 16 per cent of their income throughout their working life.
The ‘moderate standard of living’ provides some level of freedom and resilience to shocks. The lifelong savings contribution level necessary to achieve this is 21.3 per cent of income.
Assuming that good health favours an active retirement, younger generations need to focus more on hardwiring financial security in retirement in their current lifestyles. They can take the advice of some politicians and most businesses and consume more because living-for-today and letting tomorrow take care of itself provides instant gratification.
Many, however, will prefer to follow the maxim of our forefathers, who, despite the meagre resources of our country, always believed in saving for a rainy day. As long as politicians continue to shy away from further pension reforms so that people are encouraged and compelled to save a significant part of their income to avoid financial insecurity in retirement, the risk of distress and anxiety in retirement will become very real.
It is, of course, never too late to search for the holy grail of retirement. But the earlier one starts searching, the more likely it becomes to find it.