Pay into your pension to make sure you have the choice of working past 'retirement age', not because you have to
During the summer holidays I went to Florida with my family, and what I couldn't help but notice during our time there, was the amount of elderly people working. It started before we even arrived in America.
We boarded an American Airlines flight in Shannon and one of the air stewardesses who greeted us was called Rose. I got to speak with her briefly during the flight and she told me she just celebrated her 67th birthday.
When we arrived in Orlando, one of the first things we did was go to a supermarket and at the checkout, Eduardo packed our bags. I thanked him and enquired as to his age, and he told me he was 72.
Our first morning we hit Denny’s for breakfast. We were served by Betty. She was lugging plates from table to table, refilling glasses with a lovely smile. And, when I politely enquired as to what her age was, she had no hesitation in telling me she was 74.
We went to the Kennedy Space Centre and the man we bought our tickets from at the entrance was Jeff, and Jeff was 80 years old.
I met Jeff later in the day at a restaurant. He was sitting on his own and I asked if I could join him for a moment. He remembered me and said, of course, sit away. I told Jeff about the amount of people I had met that were like him, and how it surprised me there were so many working who were well over what was considered the typical retirement age.
Was there any particular reason for this I asked? And his response I guess, was obvious enough. He said, the majority of people were working not because they wanted to, but because they had to - they can’t afford to retire.
What the government pay them each week in social security payments wasn’t enough to have a decent standard of living, so they had to work to supplement their income.
Working in retirement can be a great way to generate extra cash and a great way to keep active and your days full, but having the choice to work or not is the key. Some people don’t have a choice, they absolutely have to work. And there are, a number, of reasons why I think this is the case.
The first is simple enough, people are not saving enough. The amount you have and take out of your pension fund at retirement is determined by how much you put in during your working life.
And that’s what part of your retirement income is, it’s the time when you live off past earnings saved into a pension account.
Our retirement structure has undergone significant changes in the past decade. Back in the 70s for example the majority of employees received a pension from their employer, which is known as a defined benefit pension.
They received a percentage of their salary for life when they retired, so they didn’t have to worry about how much they saved each month, their employer took care of that for them.
In the past 10 years, the number of DB schemes in Ireland has reduced by about 60%. Most employers now offer defined contribution plans where the figure an employee receives at retirement is determined by how much the employee and employer contribute and what return they achieve in the interim.
There are no guarantees with a DC scheme and the amount you receive when you can take benefits from it is up to you and no one else.
If you don’t make provisions and save into a pension fund, or have other sources of income, all you will have is what the state will pay you. And you have no control over how much they will give you and when they will give it to you.
Another reason people have to work longer than they want to, is because they don’t know how much they will spend in retirement, and when they figure that out, it’s too late, because what they have saved, is too little.
The only way you can know how much you will need is by drawing up a monthly budget. Even if you are 15 to 20 years away from retirement you should look at drawing up a retirement budget and figuring out how much you need to live off each year (you should use your current outgoings as a guide and get help from an expert when doing this if you need to).
It will give you the peace of mind that you are saving enough and will have enough to fund your lifestyle when you retire, and you won’t ever run out of money.
If you don’t, you will find yourself on the verge of retirement with no sense of whether you are prepared or not, and if you’re not, you may have to either (a) significantly alter and reduce your current standard of living and live on less or (b) work well into your 70s like Rose, Eduardo, Betty and Jeff to supplement your old age pension.
And please don’t think that you have no choice, or take it for granted that you have to work into your 70s as an excuse to be light on the amount you are saving, or delay saving altogether. According to data I read recently, two thirds of people expect to work after their retirement date but the reality is only about a quarter actually do because of poor health, illness, family issues etc.
So please act now before it’s too late and start saving even if it’s a small amount. If you decide to work after your retirement age, do it on your terms, not because you have to but because you want to.
Liam Croke is MD of Harmonics Financial Ltd,
based in Plassey. He can be contacted at email@example.com or www.harmonics.ie