Why 75 should be considered the new 65.
Over the past century, the number of centenarians living in England and Wales has increased 127-fold, reaching 13,924 in 2021 according to the ONS https://bit.ly/48MpVSj and according to the Lancet https://bit.ly/3wR6xGe longevity is set to increase annually. For business owners this is significant. Exiting the business may no longer be an option as there will be insufficient funds to finance your entire retirement period based upon the improved chance of living beyond a 100. Just as being in your 30's became the new 20's, turning 75 years old will be equivalent to the milestone of turning 65. Business owners need to consider this, both for themselves and any employees. This is a topic which is creeping up on us and is becoming a hot topic. The topic can be divided into separate sub-topics, which stand alone, but is a complex issue when the sub-topics are combined.
For baby boomers, the expectation of life broadly fell into 3 stages. Education, Employment and Enjoyment. Some people add a 4th E, Exit. Those stages were usually generally clearly defined with a few years of transition between Education and Employment and in many cases a short transition between Employment and Enjoyment when someone retired at 65. However, if 75 is to become the new 65, what will those additional 10 years look like? By considering the separate elements first and then combining them, some options will surface.
Financial.
The supporting evidence that longevity is an increasing probability for more people requires your financial forecast to be recast as to how large the pot of money needs to be to retire in the style you desire. The starting point is how much income you would need in the early stages of retirement if you stopped work completely. Calculators can provide a figure for different levels of pension activity, typically they look at the lifestyle choices https://bit.ly/3IMA9Yp. The next step would be to seek financial advice as to the value of your required “pension pot” to achieve that income. If the sale of your business contributes to this figure, then a valuation can be obtained and inserted into the calculation to ascertain if there is a shortfall. The outcome often informs the next step as to whether it is the right time to sell the business or not.
Enjoyment.
If you plan to sell the business and stop work, there will need to be a significant change in mindset for using the amount of free time. People have ideas, and there are many suggestions to be found with a bit of research. However, the use of free time after a life-time of dealing with the demands of running a business or employment can be problematic. People find that all the free time lacks purpose, or they find that they commit to indulging in an activity which becomes repetitive, and they yearn for more variety. Even if someone is keen to exit the challenges of business, assuming their health remains satisfactory, and they celebrate being 100 years old, over 35 years of fulfilling leisure time is a daunting period to contemplate.
Previous generations would have had a much lower expectation of the number of years in retirement, possibly living until they were 80 or 85, say 15 or 20 years after retiring at 65. Clearly this is significantly different to living to 100 years, which is becoming more likely.
A practical solution.
The 3 stage life of education, employment and enjoyment just will not work. Financially to have a large enough pension pot by 65 is unrealistic and launching into 35 years of leisure time, without any externally imposed interactions or challenges, whilst possibly initially attractive, is likely to become nothing short of frightening. The simple answer is that we are heading for 75 being the new 65. It will enable the financial situation to be rectified, as deferring the commencement of using your pension fund will enable it to extend for the period required and the length of free time in retirement is more manageable.
However, extending the employment stage by 10 years of work is not a satisfactory solution for many reasons. It is as daunting as having 35 years of free time to occupy. A new stage needs to be introduced. If we reflect on what occurred when people transitioned between education and employment, we note that in many cases people did not really know what they wanted and changed jobs, careers and relationships, until they found what they wanted. With hindsight there was a period of experimentation.
Experimentation
The transition between employment and enjoyment has a key similarity, people don’t know what they really want, apart from an element of earning from a different source, to break from the monotony of the established employment and to defer breaking into their pension fund. A second period of experimentation is required that blends earning and enjoyment. The earning might take many forms. It may come with different levels of responsibility, skills and social interactions.
Various options emerge for SME business owners:
Sell or wind up the business and take a part time role in a related or non-related field. Such roles without hassle of responsibility already are emerging for older people with some businesses, e.g. B&Q where it is recognised that some people want “provider only” roles after a lifetime of “responsibility” roles.
Because a business owner has probably become an expert in their field, they could wind up the business or sell it for what it’s worth but continue to earn an income as a consultant or train to be a NED. Preparation for this can be started in ones 50’s if this is an attractive proposition.
Alternatively, they could initiate a growth spurt before they exit to increase the value. But the growth spurt would be engineered in such a way that they need to acquire new skills and gain an element of free time. Researching for a merger or acquisition could be the route, if they have not identified suitable targets already.
Regardless of which option is selected, the key is creation of some free time to act as the stepping stone to full retirement, and acquiring new & varied skills in ones 40’s and 50’s will be required to tackle the Experimentation period.
This blog merely touches on the issues for individuals and society as longevity increases. For more information the book 100 Year Life Living gives more information https://bit.ly/3ItCF5G.
Next Steps
I’d be happy to have a confidential, no obligation discussion about transitioning your business before retirement at the new 65!
For more information, see website www.profitablecontractor.co.uk
More about the author https://www.linkedin.com/in/peter-searle-a75a993/