Saturday, April 15, 2006

Post retirement employment?

One of the critical assumptions used in the retirement plan was that paid employment would not be relied on to help finance retirement. A number of writers on the subject of financial planning have suggested that an inadequate level of retirement savings can be supplemented through paid employment (either full time or part time). I have serious reservations with the idea of paid employment being a necessary part of financing retirement (voluntary working is something else).

The first objection is a question of logic. If you need to rely on paid employment to maintain your lifestyle, can you really be said to have retired? Certainly not if the employment is full time and arguably not if the employment is part time. While retirement means different things to different people, my personal view is that retirement means ending the phase in life when one is forced to rely on paid employment (or self employment) in order to make financial ends meet.

The second objection is a more practical one. Depending on your gender, where you live and a host of other factors your life expectancy could be anything from 70 years to 80 years or more. As you get older, your total life expectancy gets longer. A person who has reached aged 60 could reasonably expect to live to their mid eighties - or longer. Have a look around and ask yourself how many people you know who are still working in their sixties? How many people do you know who are still working in their seventies or eighties? The answer will be not very many.

Let's have a look at some of the reasons why participation in the work force declines as people age:

1. for many people in these age groups, not working is a personal choice. This is great if you can afford it;
2. as people age, factors other than choice start to affect ability to work. Some people have difficulty keeping their skills up to date - with the pace of change of technolgy and the increasing internationalisation of the workplace, keeping skills current is an issue that many will face all through their working lives;
3. some employees are working in industries where remuneration is at least partly linked to seniority - the longer someone has been in a job, the more they get paid. While these structures are breaking down under the realities of economic life, some people just find themselves priced out of the job market;
4. there have been a number of studies that have shown that older workers are not as quick, adaptable or as dynamic as younger workers (although experience often acts as a balance). A logical consequence is that employers may prefer to hire younger workers;
5. mental and physical health deteriorates as we age. It's a fact of life. An inevitable consequence is that the ridiculously long hours that are often demanded will eventually prove too much for most of us (and not just for those whose jobs involve physical labour).

While demographics in many (if not most) developed economies may help create more opportunities for workers in retirement (in particular baby boomers), this is a somewhat risky assumption to rely on for two reasons. The same demograpic factors that may create an increased demand for older workers also dictate that the supply of older workers will also be higher. It also has to be remembered that immigration, offshore outsourcing and technology developments are also potential ways of alleviating any shortage of workers in the years ahead.

Putting the proposal differently, do you really want to be forced to work to stay afloat financially in your 60s, 70s or even 80s? What happens if you cannot find a job? What happens if you are no longer capable of working well enough to keep a job? Lastly, do you really want to have to get out of bed in the morning instead of enjoying yourself?

Don't misunderstand. I am not suggesting that working in retirement is a bad thing. There are many good reasons why a person may wish to work either full time or part time once they "retire". But to rely on full or part time employment as an essential part of a retirement plan strikes me as a very risky proposition.

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