A lot has changed since the Beatles released their love-song about ageing, "When I'm Sixty-Four" (England were Football World Cup holders for a start!).
The idea that 65 is the de facto age for retirement became well-established and the concept of taking early retirement began to take off in the early eighties. But, as a result of the recent financial downturn, the adviser community has had to warn many clients that they should not expect to be simply "doing the garden" before they enter their sixth decade.
A survey just before Christmas conducted by Life Trust of over 2,000 people in the UK, found that nearly a quarter of Brits (23%) feel they can no longer afford to retire at the time they had planned. As many as one in eight (12%) adults currently working stated that, in the light of the current economic crisis, they now expect to have to delay their retirement by as much as five years.
For those aged 45 to 54, whose retirement decisions are more imminent, nearly a third expect to be forced to delay retirement with just under a fifth (19%) planning to extend their working lives by five years of more. For the over 55s, a staggering 41% said they would be delaying retirement with 15% expecting this to be for five years or more.
With Life Trust's "Cost of Retirement Report 2008" estimating that it can cost £373,300 to finance the 'early retirement years' (from age 50 to 65), leaving the workforce before reaching the official retirement age appears to be an increasingly unaffordable luxury. Falling annuity rates mean that purchasing the requisite level of income to fund this additional sum is becoming more and more difficult, especially given the severe hit on people's pension pots.
For those that were on the verge of switching the riskier asset classes in their pension portfolio into steadier investments, and have now seen much of the value washed away by ebbing markets, it will make sense to continue working and hope for a recovery in the value of their assets. There is little doubt that many people will be sticking to accumulation strategies, rather than moving into decumulation, at this time.
With fewer clients looking to finalise their retirement income this could also affect the 'at retirement' advice provided by IFAs, leaving them to manage their clients' assets for longer than they may have expected.
Most worryingly for people who are trying to build up the appropriate pension pot to facilitate retirement, the spectre of redundancy and increasing unemployment looms large in the current climate. Some of the most vulnerable to redundancy could be those who are relatively close to retiring and some people could find themselves unemployed, unable to add to their retirement provisions and spending their savings to compensate for the loss of income.
One of the other major and far reaching problems affecting when people should retire is the issue of increasing longevity. No doubt I am repeating myself when I say that many people are likely to live significantly longer than they expect - someone who is 35 today has an almost one in three chance of reaching 95. With this in mind, it is not difficult to see the problems inherent in retiring at 55 and expecting to finance a retirement up to the current life expectancy of 85 for a man and 88 for a woman.
The opportunities for advisers are there. Hesitance to retire may well create a longer active relationship with clients in the accumulation stage and a reliance on an advisers' guidance regarding a sensible retirement timeline. The role of the IFA will be far more important for people in their preparations for retirement in the coming years. Given the levels of distrust now prevalent with the wider financial services industry, it will be nice to be needed and, indeed, trusted.
Mike Tyler is head of strategy at Life Trust
The views expressed in this blog are those of the individual.IFAonline
First mentioned in Cridland Report
Second acquisition of 2019
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