Improve your returns by not retiring

The whole concept of retirement has changed a lot in the last 135 years.

In 1881, Otto von Bismarck, the conservative president of Prussia, presented a radical idea to the Reichstag – that the government should provide financial support to older members of society. In other words, a government sponsored retirement. The idea was radical because, back then, people did not retire. Put simply, if you were alive you worked.

The German government would then create a retirement system which provided for citizens over the age of 70. At the time, most potential pensioners would, of course, be dead by 65. So this was arguably just smart politics.

Things have clearly changed since then - if you reach 65 in good health in New Zealand today, on average you can expect to live another 19 years (male) to 21 years (female).

For many the whole notion of retirement today looks something like this – work for 40-50 years, then have a party, get a gold watch and get ready for an exciting 20 years or so of golf. Unless you're really into golf, it might not come as a surprise that some studies have shown that retirement increases the chances of suffering from clinical depression (by around 40%), and of having at least one diagnosed physical illness (by around 60%).

Rather than going cold turkey at 65, for many of us, the answer lies in planning creatively for other options later in life. This could involve scaling work back to some degree (but not immediately to zero!) or even changing careers around 55 or 60, but still working another 15 or 20 years in some capacity.

If you can find a way to extend your working life by a decade or more, even with part time work, you give your retirement savings that much longer to grow. People who decide not to retire don't need to dip into their retirement savings either.

Don't underestimate the effect of another decade of compound interest on your savings pool at that point in your life. It's a very big deal.

Reference: "Improve your returns by not retiring", Synergy Investments.