Whenever we think of “retirement”, we think of relaxing at home in the garden in the afternoon, taking a casual holiday to Spain with the spouse, or spending time doting on grandchildren. Money? Well, how much could it really cost for a frugal retiree to live on? A simple company or state pension should suffice….right?
Not really, and that debate has been increasing in volatility in recent years. A 15 July Zurich press release included statistics that showed retirees in the country were of conflicted minds on the issue of retirement. On the one hand, they expected to lead “full lives” after retirement, including socializing, going on holiday, and participating in cultural events. At the same time, however 69% of those 55 and over have never sought financial advice (a topic we’ve covered here earlier) and 42% realise that they are not saving enough to meet their lifestyle retirement goals – while, apparently, believing they will somehow live their ideal retirement lifestyles anyway.
The Zurich article thus brings the financial plight of our nation’s seniors into full relief. They are intent on living active, full lives after retirement, and recognize that they will need a certain amount of money to do it. At the same time, however, they are uncertain how they will actually earn the money they will need to lead the lives they want to.
One answer could be simply taking up new work after retirement. Zurich called this “returnment”, and noted that 64% of Britons are actively considering doing this. Returnment ensures a steady income flow.
There are several potential problems with this, however. Many of the jobs open to senior citizens are in the lower-paid rungs of the service sector (ex: supermarket cashier). They provide an income, but often a disappointingly low one. They can also be physically exhaustive, and even emotionally deflating.
Another option is to build an asset base so a retiree has many more options. The most important thing for a retiree to do is to distinguish between assets and income. Jobs provide salaries, which are a type of income. However, job income shuts off the moment you stop doing your job. Nor does it accumulate or grow (unless you save or invest it).
Assets are different. They are the accumulated savings and investments you have. They are not income, but may generate income in the form of dividends, capital gains, interest, annuities or other such structures. Annuities, one of the most conservative investment vehicles that are popular among seniors, generate a regular stream of payments. Stocks, apart from dividends, generate no income until they are sold (whereupon the owner may earn capital gains). However, historically they generate the highest profit. Even if you have a period where you cannot contribute to the assets you have, they will continue to grow.
The “automatic growth potential” of assets is what makes them so important to retirement plans, and why a reasonable portion of any income you have today should be turned into assets. Homes are Britons’ greatest assets, but a home in fact generates no income unless you sell it. Even then, you will probably use of most of any profit you earn because you have to purchase another home with that money.
An advisor from Zurich or another such financial or insurance company can help you develop a financial plan that will help you live the retirement lifestyle you want. Then, even if you want to continue to work after retirement, it will be because you want to and not because you are forced to.
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