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Saving to retire, but do we really stop working?

By Peter Theuri | October 10th 2021

Some people prolong their stay at work beyond the set age while others go into business. [Courtesy]

Warren Buffett, one of the world’s most famous business magnates, is 91.

He is the chairman and CEO of the company he founded, Berkshire Hathaway, and is so suave in his craft that fellow billionaires call him The Oracle of Omaha.

Should he not have retired at that age?

Bidco Chairman Vimal Shah, in a past interview, dismissed the idea of retirement. The Shah family does not retire, they step up.

“There are four levels in the business,” he said, “and we can only step up to the higher one when we are ripe enough for it.”

Do people even retire? With Covid-19 disrupting workplace practices, will workers still aim for a certain age to hang their boots? Will we work forever?

According to TV channel CNBC, research from the Centre for Retirement Research at Boston College shows that Americans mostly tend to claim retirement benefits either around the age of 62 or their full retirement age as defined by Social Security.

This does not sound like a huge departure from what happens in Kenya. While private companies have internal human resource policies that state their employees’ retirement age, government workers should leave at 60, according to the Public Service Act.

It would be bold to assume that after attaining this age, the retirees tour the world for the remainder of their lives, tasting the finest cuisines in the Malibus and Maldives of this world.

Most of them go into business, while a number of them seek extension of their contracts. Nobody really wants to retire.

Some follow the doctrine of the ‘financial independence, retire early’ (Fire) movement, hoping to have the freedom and means to enjoy their retirement.

“Fire is an early retirement movement where people aggressively save with the intention of retiring in their 30s or 40s,” CNBC says.

“It is not for the faint of heart - you’ll have to invest more than half of your annual income and cut down on all of your expenses.”

In order to retire early, Fire adherents abide by the four per cent rule, first developed by financial advisor William Bengen in 1994.

“The four per cent rule suggests that people save 25 times their annual living expenses and withdraw only four per cent of their nest egg in retirement, only increasing the amount to adjust for inflation,” CNBC says.

But few have this kind of discipline. Fewer earn enough to accommodate such a plan.

The Covid-19 pandemic’s impact on jobs and earnings has shaken many work and retirement models.

According to the Society for Human Resource Management (SHRM), an American professional membership association, the worsening economic situation means that many employees may be forced to tap into their retirement savings to stay afloat.

“And while that may provide access to funds now, it could come back to hurt them in their golden years,” SHRM says.

“More than half (52 per cent) of respondents said they will need to dip into their long-term savings in a year or less, according to an April survey of 5,000 people by Betterment, a New York City-based financial services company.”

In addition to that, many employees also plan to work longer.

“A MoneyRates survey conducted in March found that 36.4 per cent of Americans within 20 years of retirement expect the Covid-19 crisis will delay their retirement,” SHRM says.

Will these people retire? Luke Kinoti, a corporate executive, author and entrepreneur, says some people still need to work after ‘retirement’ while others have their money working for them. In either case, it is not holiday time.

“Research shows that 80 per cent of workers want to start a business after retirement because they need to meet their daily needs as high expenses and low-income levels make it hard for them to save earlier for their sunset years,” he says.

“Others feel they cannot afford to retire, while others view their children as an old-age safety net,” writes Mr Kinoti in his book, The Agile Investor.

In a past interview at Fortune’s Most Powerful Women Summit, Mr Buffett said it would be “crazy” for him to leave his job, according to Business Insyder.

“If I quit today—I see these people. They spend a whole week planning their haircut. That is not my idea of living,” he said.

But Buffett also enjoys his job, which is also one of the reasons he would rather continue working.

“I would rather do this than anything in the world,” he said. “My Social Security check is coming every day, I don’t need this.

“I’m tap dancing to work every day. There’s nothing more exciting than to get there. It doesn’t get better than that.”

Those who subscribe to his school of thought will certainly not be planning to retire.

According to The Economist, until the Covid-19 pandemic, the average age of retirement among Americans had been steadily moving upwards since the mid-1980s.

“That has stalled. The proportion of people aged 55 and over who are retired has risen by two percentage points compared with before the pandemic, to 50 per cent,” the magazine said.

“Nearly half of Americans (49.9 per cent) expect to retire before they turn 62, a two-percentage-point increase from two years ago, according to the Federal Reserve Bank of New York.”

One reason given for the change in retirement patterns is that some Americans, particularly the well-off, are choosing to take it easy: a booming stock market and soaring house prices have made early retirement more viable.

“For others, working through a public-health crisis has changed their priorities. Falling life expectancy- it decreased by 1.9 years between 2018 and 2020—may have inspired some Americans to make the most of their golden years,” said The Economist.

“Older workers may also be especially nervous about returning to offices, given that they face a higher risk of dying from Covid-19 than their younger colleagues.”

While others are extending their working deadlines, these ones are reducing it and running to the mantra, ‘you only live once’.

Kinoti says people should invest for retirement, at whatever age.

“The first step in this process is to calculate the amount of investment accumulated in various savings plans over one’s working life,” he says.

Then it is necessary to calculate the amount of retirement income that can be provided by that wealth.

“The rule of the thumb is for employees to save at least 10 per cent of their income for retirement as soon as they start work. If you don’t do this and leave it until you are older, this percentage will rise rapidly,” Kinoti says.

He advocates for saving in pension plans, occupational pension schemes, umbrella schemes, and provident and gratuity schemes.

To plan to retire, one has to make sure that their money is making them more money.

“One of the reasons why the working class retire poor is that they work for money as opposed to having money work for them,” says Kinoti.

“Income is manifested in three ways: earned income, including salaries, portfolio income such as stocks and pensions, and passive income such as rentals and royalties.  If you want to retire poor, keep working for money without an alternative source of income.”

Additionally, many people retire poor simply because they have no golden goose and those that do frequently kill it for immediate gratification, Kinoti says.

Saving a lot of money means that the retirement years are spent in relative peace and less hassle. But do we truly retire?

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