Perhaps it is a surprise to find out that the concepts of retirement, retirement benefits and retirement age go back to 19th century Prussian Germany, where Otto von Bismarck introduced a social security system providing pension benefits for those reaching age 65. (1) Thus, Germany became the first country where it would be possible for workers to have a time of “not working” until death. In Bismarck’s days, the costs of these systems were small, because very few people reached age 65 and many of those who did live only a few years more.
When Franklin D. Roosevelt passed the social security law in the US, which set the normal retirement age at 65, the average life expectancy in the US was 61.7 years. (2) Average life expectancy has increased dramatically since`Roosevelt’s day and now sits at 78.2 in the US.
Note: In fact, the US average life expectancy is at the lower end of the spectrum for developed countries ranging from 78 till 82.6 (Japan). (3)
Our expectations with regards to retirement and how long we may expect to live have taken on entirely new shapes and forms in the last decades. A “work free life” only available to the very rich and wealthy at the end of the 19th century seemed to have come within reaches of the masses by the end of the 20th century.
Financial systems challenged
This dramatically extended period of ‘work free life’ requires, of course, that the systems in place can actually provide benefits for several decades rather than the several years they were initially designed to cope with. Huge questions will be asked of these systems and there are no guarantees at all that the answers are there.
Taking A Pro-Active Stance
Clearly then, for anyone willing and able, it is a wise and smart move to take personal control and create retirement capital which is in their own hands. Many expatriates seeking work abroad are strongly motivated to become financially independent. They are keen to ‘call their own shots’ when it comes to the two very important issues of when to retire and how to fund this retirement.
Retiring from work and our health: not straightforward
To retire from work can for many become a goal in itself, and the earlier the better. However, the relationship between retirement and personal health is not as straightforward as it might seem. One study (conducted among Shell employees) showed that, contrary to expectation, early retirement at age 55 did not increase longevity, but rather, decreased it. (4)
Another study, done in the US, comparing people (in their late 50s) retiring from work with those who instead continued to work, showed a significant increase in health risk among those who stopped working. The authors suggest a “bridge period”. (5) Rather than stop working abruptly, to gradually reduce working.
Was Sigmund Freud right after all with his famous quote:” Love and work… work and love, that’s all there is?”
A balance between enjoying life now and working for the future
Undoubtedly, our aspirations to end our days ‘free of work’ face many challenges and, inevitably, this raises the question: should retirement be our only focus? It may be wise to keep a good balance between enjoying life now and working for (a possible) retirement in the future. A perhaps rather extreme, yet nonetheless interesting, view is offered by Timothy Ferris in his readable book “The 4 hr work week. Escape the 9-5, live anywhere and join the new rich”, Ferris invites us to stop sacrificing for a future which he says “may never come” and suggests we instead focus on making our lives pleasurable, interesting and exciting today. (6)
Increased longevity: health issues but bright side as well.
Also to take into account when considering true longevity is that when living into our 80s and 90s, health may deteriorate. Unfortunately, too many elderly people are suffering from Alzheimer disease.
Note: Most people with Alzheimer’s disease have “late-onset” Alzheimer’s, which usually develops after age 60. (7)
However, there certainly is a bright side to the ageing process, providing inspiration. Plenty are the examples of people happily working in their seventies and eighties, finding immense joy by participating in the lives of grandchildren or pursuing hobbies and new interests.
A positive and inspiring window into longevity and senior citizenship is also offered by what is happening in sports. These days many people in their 60s, 70s, 80s and 90s are competing at high levels. As of spring, 2009, the oldest man to complete a marathon is 98. (8) Tennis – my favoured sport! – is another great example. Those aged 60+ competing in ITF (International Tennis Federation) tournaments, are referred to as “Super Seniors” and there are tournaments for those aged 90 and above!
Retirement & Financial independence: two periods
From a financial planning perspective, when approaching retirement and financial independence realistically, both in terms if its possibilities and challenges, it may be useful to segment the retirement period. One of my clients, who reached the age 70 last summer, has identified two stages to retirement:
Period 1: “Active and Self Managed”. A period of generally good health, mental capacity and independent living. This period may need financial management support.
Period 2: “Less Active and Assisted”. A period of weakened health with the transition to an assisted living environment. This period may need financial “custodian” support. As retirees reach their late 80’s and 90’s, their children are also retiring and may have less ability to provide and assist the retirement period of their parents.
Recognizing these two periods will encourage us to take the appropriate financial planning steps needed to deal with the various requirements of each period.
Having set the scene of what increased longevity, retirement & financial independence may entail, I will get into the details of pension plans and building retirement capital in my next article.
Notes and sources:
(1), (2) and (3) from Wikipedia
(4) Study by BMJ, 21 Oct 2005, reported in Seniorjournal.com
(5) Study by Yujie Zhan, Mo Wang, Sonngi Liu and Kenneth Shultz, 2009, reported by NHS.UK. News
(6) “The 4-hr work week” Escape the 9-5, live anywhere and join the new rich”, Timothy Ferris, Vermillion, London, 2008
(7) Alzheimer Disease Fact Sheet 2010, from National Institute on Aging, www.nia.nih.gov
(8) Dimitrion Yordanidis, aged 98, in Athens. Finished in 7 hrs 33 min.