The first thing to know is that whatever goes on in the economy is something you have no control over. You can’t control whether food and fuel prices rise, it’s just something that happens. The market, any marketplace in any country, will want to move or grow.
The reason that happens in very basic terms is that if a market is doing well, whether it’s property, stocks and shares, or selling gold; as soon as people see that there is a demand and that there are people making money, they will find a way to get into the market.
That will either increase supply or increase demand depending on where they’re coming in in the market. There is always this need to grow, grow, grow. Every so often a market takes off and the hot item then becomes very expensive compared with the rest of the market. We frequently see that with the stock exchange. The stock exchange takes off, but maybe the property market is a bit flatter. Or, the property market takes off and the stock exchange is a bit flatter. Or, if you like, strawberries are in season and banana prices stay low.
The second thing I want you to keep in mind is to accept that you’re going to live a long life. You’re going to live a lot longer than your parents, a lot longer than you think, and a lot longer than you can afford. And the reason you’re going to live a lot longer than you think is because of medical advances and medical intervention, so they can cure so many more things. We have better food now. The pace of research and development is incredible. You have the chance that medical intervention or medication will keep you going a lot longer than your parents, even in the case of currently incurable conditions.
Now, pensions are set at a certain age. But pensions are set so that the majority of the population will die soon after starting to draw out. This is so that the government or pension companies don’t have to pay out too much. A pension company would never set a pension age at fifty if the average age of passing is up in the high seventies or early eighties. So few people would die at fifty, they would have to pay out on all of these pensions for quite a long time. The drawings on the pension would be unsustainable.
It is an illusion that a pension is there to protect you in your older age; it’s set so that the probability and the likelihood is that you will not be able to draw on it for very long. The truth is, as we are moving forward in our medical advances and medical interventions, we are living a lot longer past that pension age. And if you are relying on a pension that kicks in when you’re 65 and then you live into your eighties or nineties, you are going to require a lot more money, but you’re also going to require a lot more support.
So, you’re going to live a longer life than you think. And you’re going to live, potentially, a longer life than you can afford, unless you do something about it now. If you understand that this financial situation that we’re in is about a long-term plan, then minor adjustments as they come through in the market won’t worry you as much.
You will understand that you have a plan for the long term that can ride out adjustments in the market. The only point where you will need to consider market situations is that point at which you want to sell out of any of your investments, because then you’ve got to sell out at the right price.
This brings us to another point. We are taught from a young age that we need to buy a house and that when we buy a house, we’re going to pass it down through our inheritance to our children. This is becoming less and less likely in our society. First, your children are going to live longer than they think, and because you’re living longer, they are going to be much older by the time you finally are ready to give your inheritance.
So, if I plan to live until I’m ninety, my daughter will be sixty. Well, at sixty her child will be somewhere in his late thirties. Typically, when our parents died at younger ages, inheritances came through to your parents at the mid-forties, fifties age. That put them in a position where they could clear the mortgage, clear their debts, make a plan for their retirement, even give you a little bit to get you going as young adults. They would then pass in another 20 years or so, and you would have got your inheritance.
But if everybody’s going to live much longer, there are 40-odd-year age gaps between the inheritances. When the inheritance kicks in from the grandparents, the parents are already grandparents, potentially even getting close to being great-grandparents themselves.
If I’m in my nineties and my daughter is in her sixties, her child is in their thirties, that child might have children. So, my daughter will be a grandmother and I will be a great-grandmother. When you think about inheritance planning, you should always pass down to the youngest generation, because then you avoid multiple inheritance tax payments.
Well, if I pass my money down to my great-grandchild, who’s around ten years old, then that bypasses my child’s inheritance and bypasses my grandchildren’s inheritance. It’s interesting to see how this historical pattern of money flow isn’t going to be the same.
So, two points:
- The economy always shifts. You can’t do anything about it, but what you can do is plan for the long-term.
- You’re going to live longer than you think, longer than you can afford. You need to make a long-term plan.
We can’t rely on inheritances and we can’t rely on pensions. We can’t rely on anything from the historical way of dealing with money. All the more reason—and hence, the reason that I wrote the book—that we need to be planning our own wealthy retirements. And I am here with over twenty years of experience if you would like guidance as you do so.
Do listen to this week’s episode of my podcast A Wealthy Life with Vicki Wusche here and here. And as always, we would absolutely love to hear your thoughts!