Welcome to Episode 7 The Fear of Poverty in Retirement.
The 3 topics I will cover in this episode are:
1. Genuine fears around retirement
2. Control over retirement income
3. What do you really want in retirement?
As long ago as 1937 the author Napoleon Hill, in his many times republished book, Think and Grow Rich declared poverty, criticism and ill health are the basis for most of our worries. Today poverty is still a prevalent fear when we think about retirement. We find it difficult to imagine how daily life will function without the regular salary we are paid for our professional services.
The fear of poverty in retirement is sometimes on display in advertisements for wealth creation companies. I recall the ad where the paper cut outs of people are being buffeted by the cold ill winds of poverty as they grow into old age. Also, as busy professionals avoid facing the unknowns and uncertainties of retirement.
We tell ourselves: It seems light years away I’ll be alright no matter what happens I’ll deal with that later. Right now, I’m too busy keeping everything together with work and the family I don’t want to be bothered with all those facts and figures. Which of these reasons do you relate to? Ill health is a genuine concern. If we look at the Australian Bureau of Statistics (ABS) latest report on Retirement and Retirement Intentions – Australia in 2018-19, 21% of workers aged 45 years and over left their last job due to their
own sickness, injury or disability. Additionally, women are more likely to leave their profession to care for an ill, disabled or elderly person. (women 8% v’s men 2%). Hence it is very typical to worry about having good health as we grow into our mature years.
If you are a busy professional working in the nurturing sectors of health, education or welfare you tend to expect to have a “comfortable” retirement. A common question put to retirement planners is, “How much money do I need to ensure a comfortable retirement?” It is similar to asking how long is a piece of string? Comfortable can be measured in monetary terms i.e. a regular retirement income of X dollars per year. This dollar value is usually calculated by a wealth creation or wealth savings expert. They do have the history of the facts and figures at their fingertips.
A retirement income is necessary so how much control do we have over the final level of monetary comfort we end up with in our retirement? I can think of a couple of factors over which we have no control. Beyond our immediate control are those factors such as world events.
For example, such as the impact of the Global Financial Crisis, the global Covid-19 pandemic or advancements digital disruption and the development of artificial intelligence. Secondly, National events such as changes to age pension legislation, health policy and economic policy do influence our retirement savings. I think of the economics of Retirement income in Australia. Today Australians are waiting for the outcomes of the Retirement Income Review completed in July 2020.
Did you know In Australia Retirement income has three pillars:
the Age Pension
Our own savings.
But often what we don’t always recognize is underpinning this is the assumption that retirees own their own home. Over the past thirty years this has changed dramatically for Australians. The cost of housing has escalated to the point where fewer Australians have the buying power to purchase their own home. Thirty years ago, 10 % of retirement age people paid a mortgage; today that has risen to 45%. Meeting the high cost of housing creates inequity in Retirement income. Today it is mostly mature age Australian women who are struggling with less retirement income and high rents.
How much control do you have over achieving a comfortable retirement? Is valuing retirement in monetary terms a good judgement to make? Let’s not be too quick to judge as many of us do not fulfill our intention of being able to support ourselves in our retirement. The ABS 2018-19 Retirement and Retirement Intentions report shows most workers (around 93%) aged 45 years or older have contributed to a retirement savings scheme (In Australia we call it Superannuation) and intend their savings to be the main source of income in retirement. The reality is markedly different: In 2018-19, 56.66 % of men intend superannuation to be the main retirement income source. In reality only 22.38% listed superannuation as the main source of income. For women it is a similar situation 51.77% intend superannuation to be the main source of income, 17.03 % list super as the main source of income. Many of us fall short of our best intentions.
Often, we feel powerless or overwhelmed by events that impact our monetary plans to create a comfortable retirement. We may lack the energy and enthusiasm to keep working towards the elusive goal we have in our mind. Individually we have the capacity to determine what are the things most important to us.
Ask yourself if I retire; What kind of person do I want to become and what do I want life to be about? What will be my unique personal purpose in life be?
I call to mind Ms. I. I call her Ms. I as she believed she has had to work at retaining her identity. Ms. I came to me in her early sixties. She was married to a health worker with three adult children and she is a trained teacher. In the early years of their marriage they chose not to purchase their own home but pay rent believing long term they would be better off financially. Ms. I felt it was mostly her husband’s idea. As the children left home to establish themselves in good jobs and commence having their own families the relationship between Ms. I and her husband became acrimonious. I blamed her husband for the unexpected increase in the cost of renting and kept reminding him they should have purchased their own home when they had the capacity to pay a mortgage. Ms., I decided to divorce her husband choosing to be totally responsible for her own wellbeing. She returned to teaching full time with the thought of having a reasonably paid secure job to shore up her financial future. In a short time, the stress of being a full-time worker in a beauracratic education system became too much for her and she resigned. Still needing to earn an income as she was not yet eligible for the Age pension, she found part time work as a Student Admissions Officer in a local University. She could ride her bike to work saving on transport costs and have a little more to meet rent payments.
Even after divorcing her husband and several years of part time work Ms. I was still searching for an elusive quality to her life which she found difficult to express. There was still that hollow feeling inside. We spent some time working through what were the things in life she really valued. By now she had four grandchildren and another one expected soon. Ms I decided to resign from her part time job and devote herself to assisting her daughter and her partner with the new grandchild. She even decided to rent closer to her daughter moving out of an area she had lived in most of her life. She is enjoying the company of this small family and eagerly shares the developments her grandson makes with family and friends. Without the stress and tedium of work, an aged pension in place she is now enjoying a more meaningful life.
Retirement is a big step to take and it does have uncertainties along the way. Imagine how you do have the capacity to make changes in your life, like Ms. I to have time to enjoy the things that are going to please you the most. Those things that give you your intrinsic sense of purpose.
Is it possible for you to see money merely as a tool to provide for your basic needs? What are the other needs you hold in the dream you have for your retirement? It is possible to work this through and gain some clarity for a plan around the non-financial resources for your retirement.