What to Expect in Retirement?

Most financial plans focus on the concept of saving over time and hopefully having enough by the time you reach retirement age. An example of this is superannuation. Let’s say you start working at age 25. Your employer starts contributing 9.25% of your full-time salary into a super fund of your choice or one that they recommend. Your contributions accumulate in this super fund over the next 40 odd years and magically there will be enough by the time you reach 65. I don’t think this is a good enough plan.

Let’s get real about how it actually turns out for most. Through my research and experience I have looked at how retirement usually turns out for the general populations in America, Canada as well as Australia. The Prosperity Economics Movement describes retirement in the following four stages

? Poverty
? Subsistence
? Comfort
? Prosperity

Poverty
When you are in poverty financially you are dependent on someone else to take care of you. Maybe it’s your parents, maybe it’s the government but someone else is paying your living expenses. As children most of us were impoverished,
not that life was necessarily bad, but we didn’t have enough money to have an impact on financial decisions.

As long as someone else is paying, you are dependent. And while dependence can provide a sense of security, it is at a lowlevel, because of the lack of personal control and a loss of freedom that comes with that dependency. With some exceptions, poverty is a financial level where most of us begin as children and even as teenagers we probably couldn’tmake it on our own.We don’t have assets of our own and our families carry a lot of that cost. Just as we want to grow up physically, most of us want to grow out of poverty too.

Subsistence
According to the dictionary, to subsist means “to maintain one’s existence’’. Subsistence is a stage where you possess enough money to cover your current standard of living on a pay-as-you-go basis. Usually this is accomplished through the earnings from employment. At subsistence level, life is pay cheque to pay cheque. We have money and we have bills, and usually as soon as the money comes in it is spent to meet the obligations that come with providing the necessities of life. Subsistence is usually a very fragile financial state and if something unexpected happens – i.e. the car breaks down or your company downsizes – a slide back to poverty is just around the corner. Because of this paycheque-to-pay-cheque existence, borrowing is often the only way to maintain a subsistence lifestyle. You don’t have the money to pay cash for items such as a washing machine or fridge, but you can’t live without them either, so in order to subsist in the present you commit a part of your future earnings to interest payments.

Subsistence doesn’t sound like a desirable financial state but many American’s, Canadians and Australians live in this state. In fact, the sad truth is that the majority of the population never get beyond subsistence living. Some economic studies have shown the average American family is 30 days away from bankruptcy if their pay cheques were to stop due to sickness or layoff.

Subsistence living is not just found among low-income households, that’s because a subsistence financial existence is as much a state of mind as it is a lack of money. Even people with substantial earnings (say over $100,000 per year) often find themselves in this position. With what would appear to be adequate resources they remain stuck in a week by-week mode and don’t get to the next level.

Comfort
The next level is comfort. Just for security reasons, most of us aspire to at least reach the comfort level on the prosperity spectrum. At the comfort level, you believe your financial circumstances will be ‘okay/okay’. This means life will be manageable if everything stays the same or if everything changes. Either way, you can look forward and say, ‘’Well it might not be the ideal situation but I will be okay.’’ First, consider the financial life you have now, if nothing changes, you have the same family, the same health, the same career, the same earnings and the same prospects for the future.

You feel confident that you can expect to meet all financial obligations. It is reasonable to assume that you will be able to afford annual holidays, and that you’ll be able to continue enjoying life as you slow down or retire without the fear of poverty returning in your old age. If you can, that’s the first okay of the comfort level. But what if things change?

What if you get sick? Even just sick of the work you are doing and want to make a career change? Or your employer gets sick of the work you are doing and fires you? Or worse, you literally get sick or injured and can’t continue to do the same work, what happens then? Do you have the financial resources (e.g. cash and other income-producing assets) to still be okay?

That’s a second okay. Do you have transferable skills to be employable in another field? Do you have adequate insurances to cover the monetary losses of incapacitating situations? If you can say yes to these questions, you have the second okay covered and you are truly at the level of financial comfort.

In our experience, many of the people we work with are halfway comfortable. They have the okay covered if nothing changes, but if things do change the consequences are open to debate The second okay – the one that deals with change – is much more subjective and harder to answer.

Comfort is the first financial level that addresses not only present issues but also considers the future. It is at this point where typical financial planning begins and usually also ends. Financial resources are not only used to take care of today’s necessities but also put towards future financial considerations such as funding children’s education, retirement and estate planning.

Prosperity
A select few go beyond comfort to prosperity. At the prosperity level your financial objectives expand beyond consideration of these obligations both present and future. Because you have an abundance of it, money is now viewed as a tool, evaluated in terms of what you want to accomplish with it. Instead of the defensive financial mindset (what do I have to do, what do I have to pay) that is part of the other financial steps on the ladder, prosperity has a positive progressive mentality.

Prosperity allows you to pursue ambitions instead of responding to obligations. For some, that ambition may be putting a name on a building, doing something philanthropic like donating a museum or library for your community. It can be pursuit of a hobby, the chance to fulfill a dream or anything in between. At the prosperity level, the possibilities are limited only by your imagination and your
willingness to pursue the ideas you come up with.

It’s important to note prosperity is not defined by how much money you have but by how much freedom you have with your money. Some people may not have a large income but their life is very prosperous because they have few financial restrictions and they are using their assets to do what they want.

Now you have some real context for how life may turn out, you are forearmed to ask your financial planner where the recommended plan is taking you to? Is it to a life of comfort okay or comfort okay/okay. Or is it to a level of prosperity?
You will find the majority of financial planners in Australia will struggle to get you to the prosperity level as they probably do not have a prosperity mindset themselves.

Hope you found the article interesting.  Look forward to any thoughts and perspectives.  Please feel free to contact me on (0406) 534-233 or email at [email protected]

Thanks,

Chris