In the space of one hundred years, retirement has gone from being a short period at the end of life where the incapacity to work was recognised as a reason for financial support from the State, to a long period of leisure for which every worker is expected to save.
This makes the transition into retirement a major life event characterised by fundamental financial and lifestyle changes.
Yet the issues in modern retirement debates in SA are single-tracked: Are we saving enough? Are we investing correctly? How much do you need to retire?
“Current actuarial views of retirement rest on a number of assumptions principal of which is that a successful retirement is achieved with the attainment of certain financial outcomes,” says Joanna Legutko, a lecturer in actuarial science at the University of Cape Town.
This focus is partly because after a life of bill paying, short-term decision-making, and probably delayed saving, up to 60% of savers do not achieve the replacement ratios necessary to maintain a similar standard of life once they have retired.
Does this mean that for those who cannot achieve sufficient retirement income, the outlook on retirement has to be bleak? Does it mean that within this paradigm there is little that can be done to help them achieve a satisfactory retirement?
In some rather unusual research for an actuary, Legutko has explored the concept of happiness – and how to measure and account for it – and suggests the retirement industry could incorporate the other factors responsible for happiness into their planning.
“The financial outcome is sometimes presented as the only target,” she told her audience at the recent Actuarial Society Convention in Cape Town. “The underlying assumption is that if a person has sufficient money to meet their desired level of expenditure, they will be satisfied with their retirement.
“The reality is different. I would argue that while wealth is a contributor to happiness, non-financial factors have a powerful impact on life satisfaction.
“Understanding those factors better we may be able to assist individuals in planning for their retirement more effectively.
“We [the retirement industry] tend to think of the time before retirement as active – saving, preserving, investing. In doing so, we view the time after retirement as passive; a time when you have little opportunity to improve your standard of living. This is a very disempowering process.”
The things we take for granted are actually assets which, when harnessed correctly, can contribute to a more satisfactory retirement, she says.
For instance there is a powerful relationship between health and happiness, and if you do not have health, then finding happiness in retirement becomes more difficult.
Working after retirement provides much more than just a financial benefit – it can help to make a person feel more engaged in a community and more valued.
While a period of leisure after a lifetime of work is sometimes held up as a holy grail, the reality is that for some people working, or being involved in a community, increases their sense of happiness. “It’s not to say you have to earn an income,” Legutko adds. “Volunteers report increased levels of happiness.”
Hanging onto a marriage – even if it’s the second or third, is important. It’s quite possible in the intense years of working, saving and raising kids that your spouse drives you demented. But hang in there if you can. Retirement is made infinitely happier if you have a partner to share that time with.
She adds that from a practical perspective, married couples are usually more financially prepared for retirement.
Outside of the home, a network of family and friends who can provide support adds to the happiness quotient.
Another problem with the way the retirement industry plans for retirement is that it is treated as one homogenous period, when in reality it is not, says Legutko. “It is characterized by different periods, with different costs, usually associated with health.”
Some of this is intuitive, even if the retirement industry does not take it into account. A Moneyweb reader recently noted that he had reached retirement with insufficient funds. Thinking ahead he completed number of diplomas that enabled him to teach at a local school for 12 hours a week – having never taught a day in his life.
He downscaled to more modest accommodation, abandoned the Polo shirts and other trappings of a successful life, and for local trips parks the car in favour of a bicycle – with notable health benefits. “I long ago gave up the unrealistic notion of a retirement in luxury, and golf 3 times a week, as have many others,” he wrote.
He is in the active, healthy phase of his retirement. Rather than see retirement as something passive, “which happens to you”, he has chosen to empower himself, and is arguably far happier for it.
“There are resources you can martial to improve the retirement experience,” Legutko says. “Life after retirement is a complex, dynamic and multifaceted time that requires more than just finance to make it a success.”