2017 May 23
In ‘The Early Bird gets the Worm: make your retirement plan TODAY!’, the first of a two-part series on retirement planning, I ventured to shed light on what retirement planning is, who it applies to, the benefits that can be reaped and the steps to gauge how ready you are for your retirement.
As the second part of the mini-series, this article will take an economist’s outlook on the need for retirement planning. If you are not an expert in economics, fear not, for we have condensed the content for easy comprehension and understanding.
Ageing and life expectancy
Ageing and life expectancy will drive the need for retirement planning in two ways:
Firstly, whilst population ageing may be a universal phenomenon, demographics show that Sri Lanka will be served a large dole of population ageing in the next two decades. The population of Sri Lanka, in twenty years, will grow to be as old as Europe’s or Japan’s population today. However, the level of income then will still be lower than that of Europe and Japan now. This means that the systems in place today will be unable to sustain the speed of the ageing process. In the face of this, the individual income and pension system coverage will both likely decrease.
Secondly, the current generation will live longer than the preceding generation owing to advancements in healthcare and medicine. This means that you will have to make preparations to fund yourself for about two decades, post-retirement.
Therefore, it’s important to plan for your golden years in advance, to ensure that you will have the funds required to live a comfortable life.
Lack of a social security system and shortfall of pension funds
According to recent statistics, only about 20 percent of senior citizens receive a pension. The Employees’ Provident Fund (EPF) will not suffice on account of their low investment returns, low pensionable age, and the risks associated with the lump sum payout – the risk of splurging and spending the lump sum at once, and the risk failing to convert the lump sum payout into a sustainable income scheme. And unlike countries like the USA, Australia and Singapore, Sri Lanka does not have a social security system in place. Therefore, one cannot rely on a meagre pension or EPF/ETF for survival. Additional preparations must be made to build a financial corpus to sustain your golden years.
Change in social structure
Statistically, an estimated 80 percent of the elderly population in Sri Lanka relies on their offspring for fiscal support and accommodation. However, studies now show a declining trend in this traditional support system. This emerging strain puts the elderly population at risk, particularly aged women and widowed aged women
Aged and widowed women are the most vulnerable group among the elderly population and are therefore the most prone to income insecurity. This is due to several reasons. Older women have worse health indicators and are less educated (current cohort) than men and have a longer life expectancy than men. Another reason is the increase in the probability of divorce and the subsequent decrease in the probability of remarriage. Women are also more likely than men to not work in their old ages or never have worked in their life.
Most retirees would rather sustain themselves than rely on their family for support and be a burden. However, independence is only possible when you have a comfy financial cushion to fall back on. As people age, lose their spouse (generally male, given that women have a longer life expectancy than men), and can no longer support themselves, they transition to co-residence with their children. But given the downhill trend of the traditional social system, elderly people are at increased risk of being thrown out into the street with no means of sustaining themselves. Thus, it is important, now more than ever, to put forethought and effort into building a comfy corpus to power up your retirement.
Limitations of health and physique
Sri Lankan senior citizens lack social security coverage, and without a retirement plan, run the risk of being victims of the monster that is poverty. This may force you to work even in your “golden years” in order to receive an income. If poor health or a debilitating illness plagues you, then you will virtually have no means of funding yourself. This factor also fuels the rising need for retirement planning.
We cannot control population ageing, the deterioration of our health with time, or the trends followed by the social system. What we can do, however, is prepare and adapt to these changes in order to face the challenge of retirement head-on.
Experts at Ceylinco Life have studied these demographic and social factors in great detail to structure the perfect range of retirement plans to cater to your needs. For more information, visit http://www.ceylincolife.com/
Retirement is arguably one of the most glorious phases of your life. It’s the time to relax and free your life of the stresses and burdens brought about by jobs and kids. One shouldn’t still be scavenging for money at the ripe of age of 75. But without a proper retirement plan, that may very well end up being YOUR future. It is, therefore, crucial to start planning for your golden years without further delay.
Now that you have reached the end of the two-part series, you are sure to have gained an arsenal of information on the ins and outs of retirement planning. So what are you waiting for? Stop procrastinating, and start planning for your retirement – TODAY!
2008. Sri Lanka – Addressing the Needs of an Ageing Population (Report No. 43396-LK), World Bank.
(Part Two of a Two-Part Article)