Let’s say you haven’t been saving 10% of your income from the first paycheck you ever received. I mean of course you have right? Um … so hypothetically, how long would you have to work to give you enough money to live once you (eventually) retire?
This is part 4 of a series on the implications of living longer (see the series summary at the bottom of the page) and in this post I’ll have a look at how long we will have to work to finance this longer life. (Click here for the posts in the series)
How long you’ll have to work depends on how much you’ve been saving so far. So enter Andrew Scott, the economist on the book to give us the (bad) news:
Let’s assume you’re going to live to 85, which is very likely if you were born in 1970. Then look at the chart below and you can follow with your finger how long you’ll have to work.
Now this graph is a little tricky so let’s assume that you want a pension of 50% your final salary (that’s the X axis: Pension replacement rate) so put your finger at 50% on the X axis. then trace your finger up to the angled line for the retirement age you imagine e.g. start at 50% on the bottom then go up to the line for age 70 retirement and then go straight left to the Y axis to discover you needed to have started saving approximately 14% of your income from your first paycheck. Okay, so you weren’t doing that now try it for age 75 and you’ll discover that you needed to start saving 8 percent from your first paycheck.
But wait, it gets worse, if you were born in 1998 you’re expected to live until you’re 95 so then do the same thing with the graph below, and you’ll discover that you better get busy saving about 18% of your income to retire at 75.
In the next post i’ll have a look at what this means for our lives. The end of the 3 stage life and the beginning of the multistage life.
SERIES SUMMARY
A child born in 1914 had a 1% probability of living to 100 years old. A child born today has a 50% chance of living to be 100. What does that mean for us as individuals, as employers and as a society?
This series I’m blogging through Gratton/Scott’s Financial Times/McKinsey book of the year nominee The 100 Year Life (Click here for the posts in the series) . The book focuses on managing our financing, employment and intangible assets to live a long and happy life. The authors explain how we’ll migrate from a 3-stage life to a multi-stage life. They do it by creating 3 personas of different ages, and then exploring what their lives will be like as they live out their lives.
They explore the investments we’ll have to start making now. The investments are financial primarily savings, but also intangible like investments in health, relationships and the transformational assets of knowing ourselves and having a greater network of people so we can make the work transitions to keep earning into our old age. Fun!
World.Hatch Learning 