The world is changing at a rapid rate and what was true yesterday is simply not true today. One of these outdated truths is that individuals are going to retire at 65 and die by 90. However, the reality is that many people are working well past the traditional retirement age and will live to celebrate their 90th birthday and beyond.
One of the scary facts, according to a National Treasury statement, is that only 6% of South Africans have enough savings to retire comfortably at age 65.
According to Leza Wells, Chief Product Actuary at Life insurer FMI, the insurance industry needs to ensure that we are not still using yesterday’s assumptions to inform today’s approach to financial planning. In addition, mortality researchers around the world must now consider the impact that a pandemic like Covid-19- might have on expected trends, such as a shift in the global population ageing. Where trends are concerned, one of the questions to ask is whether this a once-off blip in the trend or will we see future pandemics that negate improving mortality trends? Or does this mean that those who survive pandemics are in better health and hence average life expectancy will be even longer, resulting in individuals working beyond the current retirement age?
What does this mean for financial planning for retirement? “Quite simply, individuals need to work longer and save more,” according to Wells.
“As a financial adviser, one of the ways you can help your clients to save more is in your approach to risk planning. Risk and investment planning are inextricably linked and how you structure one can have a significant impact on the other. Yet, they’re seldom part of the same conversation.”
Wells emphasises that a risk plan should be designed to protect your clients’ ability to earn an income for as long as they work. “Any interruption to their income can have a permanent negative effect on their savings and investments.”
“The combination of income and lump sum benefits across all risk events simplifies the advice process and ensures your clients are covered for both short- and long-term risks.
This approach will also save your clients a significant sum of money over time compared to a lump sum only approach. Income benefits are more cost effective when compared to equivalent lump sum amounts and avoids clients paying for unnecessary level or increasing cover as they approach retirement.”
“By approaching risk planning in a more cost-efficient way and investing these savings, you can make a significant difference to your clients’ retirement future,” Wells concludes.