Traditional Retirement Losing Appeal for Wealthy

A report released from Barclays Wealth shows that high-net-worth Americans are not as inclined to a traditional retirement as was once the norm.

The report, “The Age Illusion: How the Wealthy are Redefining Their Retirement,” found that 54% of wealthy Americans either completely or slightly agreed with the statement: “No matter what my age, I envision being involved in commercial/professional work of some kind.” Barclays is dubbing this new group as the “nevertirees.”

The trend towards working through retirement, whether full-time or part-time, has been globalized. This is especially vivid in emerging markets where the majority of high-net-worth individuals are still under 45 years of age. In countries such as Saudi Arabia (92%), United Arab Emirates (91%), and South Africa (89%), the majority of wealthy individuals are not seeking a traditional retirement.

But perhaps a “traditional” retirement is not as traditional as we think, said Steve Vernon, U.S. Author, Columnist and Actuary who was interviewed for the Barclays study. He pointed out that this is the first generation which has potentially 30 years of living in retirement. The idea of not working at all during those years will continue to decline in popularity for two reasons: the recent economic volatility has made wealthy individuals not as confident that they will be able to fund the comfortable lifestyle they have grown accustomed to and the fact that there is growing evidence that having some sort of job can result in living a longer, healthier, and happier life. But it doesn’t need to be a 9-5 sort of job, Vernon reminds us: “It’s not necessarily working that helps you — it’s really engagement with life, having a powerful reason to keep getting up in the morning.”

Matt Brady, Head of Wealth Advisory, Americas at Barclays Wealth says: “This represents a step change for wealthy people. While previous generations looked to create their wealth early on in life with a view to enjoying it when they retired, this report reflects a different attitude, with people wanting to continue to challenge themselves well beyond the traditional retirement age.”

In addition to wanting to have more meaningful and productive retirement years, the other reason for shunning traditional retirement is a renewed understanding for how unpredictable life can be. When asked how predictable certain deciding factors are when thinking about retirement, respondents overall agreed that not many things are predictable:

* 46% said the rate of return on investments is predictable, as is the rate of tax they’ll be paying.
* 36% said the health of the economy is predictable.

All of these factors can make even those who have more than $1.5 million in assets unsure of their financial security in retirement. Only 48% of U.S. high-net-worth individuals would classify themselves as completely secure financially.

Considering how unpredictable economic security can be, combined with the expectation to live a long and healthy life, Barclays urges wealthy individuals to look for these five “ideal” requirements when making investment choices:

* Safe. Investments need to be “safe” from financial market collapses. But they also need to provide for an individual living for a long time.
* Decent returns. Returns need to be “safe,” but still good enough to make sure the individual does not have to accept a lower standard of living.
* Tax efficient. An obvious one—but that which some people do not pay enough attention too. There may be choices to be made between the taxation of income and capital.
* Flexible. Clearly desirable, if the individual has to meet unexpected expenditures. But flexibility must not preclude the investment’s ability to provide adequate returns over a long period of time.
* Inheritable. If the investor dies prematurely, they may want at least some of their investment to be made available to their family. This is a particular problem sometimes with annuities or many forms of pension plans.

The report, the 12th in the Barclays Wealth “Insights” series, is based on a survey of more than 2,000 high-net-worth individuals who were asked to consider what retirement and later life means to them.

Nicole Bliman