I read an interesting article recently where a journalist was saying that she’d noticed a growing division amongst her friends, between those who were heading toward their sixties financially comfortable and those who weren’t. It wasn’t that the latter group were heading toward poverty, or anywhere near it (she’d have to head North to have friends like those!) they were just realising they wouldn’t be able to keep up with their very nice middle class lifestyles once they stopped earning. From the skiing week in Courchevel before the big long haul holiday in the summer, to the odd bottle of half decent red most evenings and the spontaneous weekends away, such middle class dreams often require a salaried funding. When it stops, or radically reduces, these people sometimes find they have been living well beyond their future means in quite a big way.
Those friends of the journalist who were facing a financially restrained future had often had unforeseen events happen to them that subsequently hobbled their plans. A messy divorce, an illness that didn’t want to wait on NHS for treatment, a hoped for inheritance being rapidly burnt up in care home expenses or a sudden and unexpected end to employment. Well, such calamities happen, but having a level of spending that they just hadn’t realised they were burning through on a week to week basis is less excusable. No, strike that, it’s just NOT excusable, and most readers of this blog will probably nod in agreement. How can you NOT know what your spending levels are, or where the money goes on a month to month, if not day to day, basis? The people who are going to be caught out are financially in the “Unknown unknowns” zone, and they only have themselves to look at when this realisation dawns. How many are in this situation? Well, when I was talking to a headhunter friend recently he was telling me how depressing it was to meet with fifty something executives, desperately pleading with him to help find them a job paying “Just fifty or sixty thousand a year, that’s about all I need”. They’ve no idea how difficult it is to find those roles once you’re a certain age. “And Jim”, he went on, “these guys are living literally from pay cheque to pay cheque, you’ve no idea how many of them I see. I tell you, the desperation sets in pretty quick”.
(Believe me, I could write, and will write some day, about the job market for the over fifties. It’s horrible in so many ways that I’m afraid if I start, I might finish myself off!)
I often hear my friends jibing each other about employment in the private sector versus the public one, and there’s an increasing edge to it as we approach pensionable age. This is because the public sector workers often have the iron clad, defined benefit pension pots that will simply never run out until their dying day. The guys who are in private employment generally now have defined contribution schemes (the self-employed blokes, I’m afraid to ask). With a DC plan, it’s beginning to dawn on them, from Day One of their retirement that pot starts to run out. How to ensure it doesn’t? Buy an annuity? Seriously? Those who have done the calculation often feel their jaws drop at the paucity of the returns. Surely they must get more than that?
I’m lucky, I have an experience of both with a DC and a DB pot. But I still fret about the future. What if my DB company scheme gets into severe difficulty? It’s already carrying a substantial deficit that I’m frankly too scared to look into. What if my self invested DC plan implodes in a market meltdown? Having lived through the internet bubble and the 2008 crisis I’ve seen the latter happen, but in those dismal days I was earning and buying the cheap market month after month, pound cost averaging and keeping my fingers crossed. Once retired, that avenue of earning won’t be open to me, or potentially not in any easy or financially significant way.
With both types of pension to hand, I can be a bit sanguine about the potential financial impact of unexpected events. Other consequences of them, who knows, and I find I really don’t want to dwell on subjects like divorce, bad health, ageing parents and the rest. Old age is not an unexpected event all the same, and at least I did plan a bit for when it arrives, although the older I get that harder it is to define when Old Age is actually going to happen to me. It’s always about twenty years away, isn’t it? So that gives me plenty of time to plan…..