Pensions and other forms of traditional saving are almost pointless when trying to save for retirement because of the increased lifespan or, more accurately, due to advancements in modern healthcare and healthy living.
If you are born in the developed world in the 21st century, you will live longer, be healthier, and hopefully have better prospects.
People are likely to live longer due to better healthcare, and the lack of wars and other events that traditionally kill people in previous centuries no longer being a large factor in deaths in the 21st century.
What this could mean is that people could live 25 years, if not more, after retirement in the late 60s; however, these estimates are expected to move to the 70s within this decade, which will mean that all retirement funds and savings will become useless and no longer the task of looking after people when they retire.
In previous generations, when men and women retired, they were not expected to live past a decade, but now a child born in the 2000s is expected to reach their 100th birthday by the end of the century. This means people need the funds for retirement of nearly 40 years, if not more.
Purchasing power
A £10 note today within 50 years in terms of purchasing power will be the equivalent of 5 pounds in today’s currency though this can fluctuate due to inflation and rising living costs.
What this means in practical terms is that if an individual saved £4000 a year for the next 25 years, that would be the equivalent of £100,000; however, in real terms, which is the purchasing power of currency would only be £50,000.
When applying this to, let’s say, the average household will need £26,000 a year to maintain their living costs with rising inflation, these numbers may not be accurate.
This means to successfully have money for retirement. People need to master what money is. In the words of Robert Kiyosaki, author of the book Rich Dad Poor Dad, the 2rich don’t invest their money in retirement funds; they invest their money in assets”.
Investment Options
Adam Sosnick, a financial investor, hedge fund manager and podcaster of the Value Entertainment Money podcast, and co-host of the Patrick Bet-David podcast, stated that “buying a house is a lifestyle choice but a poor investment”.
This means that from a financial investment standpoint, buying a house is a drain on your financial capital it takes, on average, 25 years for a homebuyer to pay off their mortgage.
With the amount of money being placed into people’s mortgages from a financial and investment standpoint, it would make more practical sense for people to put their cash into the 500 S&P index funds, which on average, the investors would receive a 10% return on the initial investment for the next 25 years.
This is where a critical difference in mindset plays a vital role in handling financial assets and preparing for retirement.
Most people cannot handle the responsibilities of preparing and building a portfolio of different index funds and other investments to prepare for retirement.
Again, buying a house and having a mortgage is not a great financial investment strategy, for it is a lifestyle choice.
This is something that people wishing to invest either in gold, the stock market or other forms of investment have to choose whether or not this truly is the way forward for themselves.
Blog link The Guide to Understanding Currency