The rules of work and retirement are changing. We have written about this before here and new data backs it up: we can no longer bank on a guaranteed job for life until we retire.
One of the biggest impacts of long-term investment and retirement planning that can affect everyone is this rapidly changing nature of work. As presented recently in Marketwatch, reports out of the US suggest that only 16% of people at age 65 are still in the job and earnings bracket they expected they would be in when they were 51! That means 84% are not! That’s an astounding statistic.
This is relevant whether you are 35 and building your career or 60 and approaching retirement.
The frequency of this happening as shown in this report, means it doesn’t really count as a Black Swan event– something that is unexpected, unpredictable and impactful– because its prevalence means it should be expected. The erosion of employment security is a change that started happening about 20 years ago and the impacts are being felt by many individuals now.
There are other factors we face, such as bear markets and market downturns, and true Black Swan events like Brexit, and we recommend you build in contingencies for as many as you can. However, when considering these you should also include the scenario of what if your career trajectory changes course, flattens or stops prematurely. Job insecurity needs to be built in.
What might it look like?
Here is the scenario: you are an international professional, living and working in Europe. You are hopefully receiving pension contributions and building cash reserves and investment portfolios. Your plan and the amount you are investing is based on working until your planned retirement age (say 65). Then suddenly, perhaps between the ages of 45 and 50, you are made redundant. You suddenly find that companies prefer to employ younger and less expensive management compared to you. They don’t value your experience and expertise as much as you thought they would. As an expat, you now have to decide whether to stay where you are, to move to a new country, or return home. Immediate thoughts turn to home cash flow, because you still need to pay the mortgage, your rent, the school fees etc, but you also need to think longer term, what will this mean for my planned retirement? We are not going to get into the psychological impacts on your wellbeing although they are also significant.
What you should do now
Prepare for the unexpected.
You should be building in contingencies to your planning. That means making sure you have flexibility and liquidity.
Flexibility is a mantra of ours when we advise our international clients and it is flexibility that can help you stay on course. To prepare, we urge all our international clients to integrate flexibility.
Liquidity. We always urge our clients to ensure they can access investments without restriction and without penalties. A growing portfolio is of little use if there are punitive exit fees or regulatory restrictions stopping you from accessing the money you need. If you are not sure if your current investment structures meet these standards, speak to us for an independent assessment.
Next, build uncertainty into your plan. Where possible, invest more than the base case scenario suggests. If you need to invest x to achieve your retirement goal by 65, you should be investing x plus now. Then, if your career is derailed, your retirement plans are not.
Third, get proper and independent professional advice. One of the best returns on investment is from investing in tailored advice that gives you choice and builds in disaster case scenarios.
If you are not sure if your situation is able to stand up to such change, speak with us. We will happily review your situation, your investments and your plans. The peace of mind of the added security is well worth it.
What if it has already happened?
Get advice now. The decisions you make can affect you now and in the future. The same principles apply, the only change is the need is more immediate. You will need to review where your current plan will take you without ongoing investment or pension contributions. You may need to review your goals and aspirations as well as your timeframe. It can also be a positive time in getting you to stop and consider what is most important in your life and what you would most like to do and achieve.
Be mindful that you are not alone. This is happening with sufficient frequency that they have coined a term for it in the US- they call it ‘juniorisation’ of the workforce.
You can always contact us for a free chat about what to do, the options you have and how to put some structure in place to help you make clear decisions.
Whether you have been made redundant or are building in a buffer just in case, good planning can reduce the impact of unexpected events. If they don’t occur, then you have a better quality of life and potentially more income in retirement than expected. In summary, be flexible, maintain liquidity, take time to understand and document your goals, and get ongoing independent advice that can work with you over time across all circumstances.