How to avoid falling off the retirement cliff
Otto von Bismarck, the first chancellor of united Germany, designed the concept of “retirement” in 1881. The ideal time, he said, would be 70 years. Back then, people simply didn’t retire. It was a revolutionary idea given that the life expectancy of a German worker was around 45.
Bismarck, and others who followed suit, didn’t expect workers to outlive their retirement savings. But with the phenomenal advances in medicine, increased longevity is now a reality which poses a serious welfare challenge.
The Baby Boomers retirement conundrum is a story which has been widely told. Baby Boomers refers to a generation of people born in the 1940s to the early 1960s. This generation has reached the traditional retirement age of 60 to 65 and yet are reluctant or unable to retire.
The effect of this is twofold: individuals are living longer which results in higher medical and living expenses and countries have to plan for the increased number of older people while the Millennials (people born in the 1980s to 2000s) is faced with looking after ageing parents.
Challenges facing South Africa
Firstly, the country faces a bigger bill to support a growing older population. The number of people reaching retirement age is increasing (the accepted norm is that people retire between the ages of 60 and 65). People over the age of 60 with no other means of financial income qualify for a monthly state pension.
Secondly, South Africa suffers from a poor savings culture. Many people are living beyond their means and getting caught in the debt trap. Ultimately, the burden on government’s limited resources increases as individuals become more reliant on public services when they enter retirement age.
Impact on our economy
South Africa’s population is ageing, with 8% of the total aged 60 or older. The overall country life expectancy rates have been climbing steadily again, and now stand at 59.7 years for males and 65.1 years for females.
The bulging numbers of retiring people is a precursor for a host of socioeconomic challenges. These include a rising pension bill for an already pressured public purse. About 3.1 million South Africans depend on older persons grant. This number is expected to rise to 7 million by 2030.
While the number of retiring people is rising the taxpaying base is not growing and unemployment numbers remain high. The number of individual taxpayers decreased by 13% from 5.5 million during the 2013/14 tax year to about 4.7 million during the 2014/15 tax year.
Rising retirement numbers are also known to result in a significant loss of expertise (the “brain drain”). The problem becomes more acute when the loss of skill due to retirement exists alongside a poor education, skills feeder-system.
So what are the solutions?
Ultimately, the idea that everyone is willing or able to retire at 60 or 65 is an illusion and the situation calls for innovative solutions from different stakeholders – employers, the financial industry and the public sector:
- Organisations could create a mentorship programme where older workers could transfer much needed skills and experience to a younger generation. This wouldn‘t only address the country’s high unemployment rate, but also the mass of unskilled, young individuals.
- Phased-in retirement could be considered. This is where the person entering into retirement isn’t permanently on the books of the company, but is rather retained as a contractor.
- Retirees should also be encouraged to embark on a second, self-employed career to keep cash-flow going.
Read the full article on The Conversation
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