‘Will you still need me,
will you still feed me
When I’m sixty-four’
Today’s older workers may have sung along to the Beatles tune When I’m 64 in their younger days, blissfully unaware they would face their own abandonment issues one day: having to retire from their jobs before they felt ready, financially or otherwise.
South Africa has no official retirement age, but workers typically get pushed out by 65. For some, that is too young. According to the 10X Investments Retirement Reality Report 2022 (RRR22), 34% of retirees were forced out before they were ready. Of those still employed, 36% hoped to retire beyond 70, or not at all. Perhaps that should become the standard, as the British publication The Economist posited more than 10 years ago in its “70 or bust!” cover story.
With the sharply rising cost of living and steep unemployment in South Africa, having a stable job seems like a luxury; hanging on to one after 65 very optimistic. But, even among those South Africans who are saving for retirement, 71% believe they will need to earn additional income thereafter to make ends meet. Delaying retirement would boost their assets (more years of saving and investing) while shrinking their liability (fewer pension years to fund).
Historically, people worked as long as they could, as many still do today if they are self-employed. The world’s first pension scheme, introduced in Germany in 1889, only kicked in at 70.
It’s not something that employers would endorse, though, at least not universally. We do become less productive (but no less expensive) as we age. Our propensity for physical labour and long hours diminishes. So does our mental capacity. Fluid intelligence, the ability to think quickly and recall information, is well in retreat by 40. Instead, we rely more on our crystallised intelligence, the accumulation of facts and knowledge, which peaks much later.
Older workers are less adept at absorbing new data and adjusting to new technologies, but they bring wisdom and experience to the table. In business, this trade-off is made selectively, a form of discrimination that allows older people to stay on in positions that rate judgement over mental agility and vigour. If you are working on the factory floor, down a mine, or in a call centre, you probably won’t be working past 65; if you are the finance director or CEO, you might be.
Having the same retirement age as 100 years ago seems out of time, given that life expectancy has increased by three years per decade since the 1940’s. If that trend holds, someone born today could expect to live to 108.
That probably won’t happen though. We’re not living much longer than 100 or even 1,000 years ago, it’s just that more of us are growing old. In other words, we are seeing higher life expectancies, but not longer lifespans.
Higher life expectancies are due to lower child mortality rates, fewer wars, better medicines and medical care, and safer jobs, not evolutionary gains. Most of the improvements have already been incorporated in today’s life expectancies, which is why they are starting to plateau in the developed world. We can’t expect life expectancies to continue to increase by three years per decade from here onwards.
In South Africa, life expectancy at birth has increased from 56 in 2000 to 65 today, according to data from the World Health Organisation; life expectancy for a 60-year-old has increased by only three years, from 76 to 79.
That doesn’t justify raising the corporate retirement age for those in a defined contribution plan, which targets just their liability. That liability does not increase because more people get old, the way it does in a defined benefit scheme, where more people reaching, say, 80 increases the fund’s obligations. Hence the push by some European public pension systems to raise retirement age to 67.
A stronger case can be made off increasing health spans. Healthier living and better medical care allows some people to work longer, but here, too, there will be inequalities because not all can afford the same level of care or lifestyle.
Alas, unlike in Europe and the US, our economy and demographics won’t support it. We have the highest unemployment rate in the world, and a bottom-heavy population pyramid. The ratio of people pushing into the workforce (15-25) versus those eyeing retirement (55-64) was 2,4 in 2020, high compared to developed nations, which have a ratio of around 1. This makes it difficult for older people to keep their jobs, let alone prolong them (34% of the retirees who participated in RRR22 said they had been forced out early).
Staying economically active after 65 is one way to mitigate the financial pressure of an underfunded pension, and there are no laws to stop anyone doing that. But allowing just a select few to carry on in the formal workplace threatens more inequality, whereas a universal policy seems unrealistic in the context of our country’s economic and population dynamics.
More conventionally, the issue must be addressed upfront, by saving early, saving more, investing appropriately and preserving funds. These simple rules will deliver a more comfortable retirement for all, without having to pray for changing policies or staying employable past 65. That is something to aspire to, and a consideration for those facing up to their retirement reality now, but it cannot be the plan.
The content herein is provided as general information. It is not intended as, nor does it constitute, financial, tax, legal, investment or other advice. 10X Investments is an authorised FSP (number 28250). 10X Index Fund Managers (RF) (Pty) Ltd is a Manager registered under the Collective Investment Schemes Control Act, 2002.
Ishani Khoosal-Kala is Head of EB Corporate Distribution at 10X Investments.