While attending a media briefing on the latest Sanlam Benchmark survey on retirement last week, I was astounded to discover that the average retirement savings balance for a 37-year-old is only R90 000. The average for millennials (someone born between 1981 and 1996) is R40 000.
This necessitates a reality check. If you are a middle- or upper-income earner and your life savings by the age of 37 is a grand total of R90 000 or less, you can remove the word ‘retirement’ from your financial plan.
To catch up that deficit in just 20 years would require a substantial increase in the amount you save each month, as well as above average returns from the stock market. Add this to the fact that millennials will most likely live to the age of 90 or even beyond, and it would be fair to say that, for this age group, retirement is officially dead.
But before you give in to despair, there is some good news. Retirement as a concept is pretty much dead for everyone. We are living way too long and to fund 30 years of retirement from our monthly salaries would be a significant challenge, even if we began saving when we received our first pay cheque, so we need to start thinking very differently. The good news for millennials is that, because they are far more tech savvy and future orientated than the older generations, they will most likely adapt more easily to this no-retirement future.
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If you are an underfunded millennial (or a 37-year-old), this is what you need to start doing:
Start thinking of longevity
It is unlikely that you will have enough money to put your feet up at the age of 60 or even 65 and watch the daisies grow. More importantly, why would you want to? You are most likely going to live 30 years past the traditional retirement age, so start thinking about longevity in your career, or start a business or investment that can produce an annuity income that, over time, can make you money with less of a hands-on approach.
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There are several ways to do this:
Start a side business: This could be anything from selling jewellery to owning Uber cars. You may have a skill that allows you to supplement your income over the weekends. Depending on the business, this could either provide you with some additional income that you can start to invest, or it is the type of business you can grow and eventually work on full time.
Understand the “gig economy”: The world of permanent employment is also changing. Ever more organisations are hiring contract and independent workers for short-term contracts – hence the term “gig economy”. This is particularly true in the technology, communication and media sectors.
This is fantastic news for someone who wants to be independent, not stuck to a desk all day and who is happy in the virtual world. If you embrace the contract world and your skills can be applied virtually, you can do a gig for any organisation in the world from home. The move into a more tech-related environment will be the saving grace for extended careers. While you may not want to be stuck behind the same desk until the age of 75, there is no reason you cannot still be working and earning money by using technology to access your clients.
Upskill: Make sure your skills remain relevant as the skills required today may be redundant in 10 years’ time. Do research into the type of skills in your sector that are growing in demand. If you are planning to start your own business, start researching, learning and saving. In fact, any entrepreneurial and business marketing skills are going to be invaluable in the gig economy.
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Stop trying to find a quick fix
There is nothing wrong with getting involved in managing your own money, in starting a trading account or even learning about foreign exchange, but don’t think this is going to solve your lack of savings. Over time, the amount of money you have will mostly depend on how much you put away and for how long. Be wary of promises to “double your money” or “learn the secrets of the market”.
Go back to the basics of financial management, and stop living off debt and spending more than you earn. This will keep setting you back and you will end up tapping into whatever savings you have accumulated. It will also keep you enslaved to a pay cheque when what you really want is to go out on your own. In a gig economy, no one will survive for long with huge debt repayment bills.
Don’t ignore the power of saving and investing over time. While you may not be on track to give up work in 20 years’ time, a good nest egg will supplement your income in later years, giving you flexibility and career longevity because you’ll be able to work less for longer. A nest egg also gives you choices and flexibility, and it allows you to take the risks to live your passion – debt does completely the opposite.
In short, start thinking about financial planning differently – think about how you will stay relevant. Invest in yourself and think of ideas that will enable you to earn an income in your later years.