Young people tend not to think about retirement – or if they do, they follow advice better suited to the reality of retirement in today’s world. But the path to retirement is changing, and by the time today’s 30-somethings retire, their realities will be quite different to those who retire today. Some of the reasons are:
Self-employment is now more prevalent amongst young people
Many younger people are self-employed and must make their own retirement plans without the benefit of an employer contributing to their retirement savings and providing benefits such as group life cover.
Younger generations end have children later in life
For older generations, having children in your twenties was the norm and at the latest, you had children in your early thirties. Now, younger people are studying longer and marrying and starting families later. Some women have children only in their forties while men become fathers at even older ages.
This means that whereas previously couples had periods of 20 years or more after their children left home in which to add to their retirement savings, now many couples have dependent children at home until just a few years before they retire, or even after they retire. Having dependents other than a spouse when you retire has big implications for the amount of income you will need for your retirement.
Younger generations will live much longer in retirement
A presenter at this year’s Financial Planning Institute conference said that in 1800, the average life expectancy was 38. In 1900, it was 53 and in 2000 it was between 77 and 80. In 2100, at age 65, people will on average be only halfway through their lives. Whilst a person who retires now at age 65 needed to plan for a 20-year retirement, younger generations need to be planning for much longer retirement periods.
Working in retirement will increasingly become a reality and is likely to be very common by the time today’s 30-somethings reach age 65.
[with acknowledgement to Laura du Preez writing in Personal Finance, 10 October 2015]