Retirement can be the saddest or happiest day of our lives and it all depends on the daily simple financial decisions we make today.
While culturally we Bhutanese in general do not at all plan for retirement, except for a few compulsory schemes for government and corporate employees, changing attitudes and life styles now entail us to have one. And fortunately it is never too late to start now than never, and tomorrow could be too late. To most of us the financial decisions we make today will make a difference between living a happily retired independent life or babysitting grandchildren of incessantly nagging daughter-in-laws/son-in-laws, owning a decent private home or being bothered every morning by a cruel house owner and making a pilgrimage to Bodhgaya or always circumambulating a nearby temple.
It is increasingly becoming difficult for the elderly to fit into the fast and modern life styles of our younger generations. It will only get worse in the next twenty or thirty years. That is when current mid-level earners will reach their retirement ages.
The life expectancy in Bhutan was 69.5 in 2014, as per the Human Development Report 2015 compiled by the UNDP, which indicates that on an average, our retirement life expectancy (RLE) would be 11.5 years (69.5 – 58 superannuation age). This can be expected to improve substantially due to improvement in medical facilities and living standards. Thus, if we expect to live up to 75 to 80 years of age, it would only mean that we would be living another 17 to 22 years (RLE) without income. Our working life expectancy (WLR) is just around 34 years (58 superannuation age – 24 average age of employment). And today if I am 35 years old, I am left with a mere 23 years to earn to support current living and to plan for a decent retired life of 17 to 22 years.
Thus, it is and it was necessary for us to avoid financial blunders at the very start of one’s earning life and rather plan for a decent retirement. If there are no motivating avenues to invest in, at least there are areas to avoid spending too much on and rather save for retirement. These financial decisions are within our grip. The table (see box) illustrates how we are losing an opportunity for decent retirement while seeking unnecessary short term comforts, which is a very common financial blunder among many of us.
In fulfilling the current desire for comfort at market value of Nu 1.57 million we are sacrificing a future comfort of Nu. 8.4 million. Even better is that the market value of an iPhone would be halved in just two to three years and the car in just four to five years, assuming that the elected governments aren’t erratic with their taxation policies. This is a value of money which not many of us are prepared and can afford to lose at our current earning capacity.
The experts suggest that a household would require maintaining a wealth replacement rate (WRR), amount of income in retirement needed to maintain pre-retirement living standards, of 75 to 80 percent. However, for Bhutanese with a typical life style, a WRR of 70 percent could be fair enough. To maintain a WRR of 70 percent the earner of 33-years old and expecting to live up to 75 years of age would have to save 53.77 percent of his/her annual income for rest of his working life expectancy.
It is calculated at a current rate of return of 8.75 percent (BoB interest rate on a long term recurring deposit) and inflation adjusted return of 2.42 percent after retirement. The inflation rate estimated at 6.18 percent (average inflation rate is 6.18 percent from 2001 till 2015). If he/she waits for one more year to start saving, his/her required rate of saving goes up to 54.96 percent.
However, for a new earner of 24 years of age he/she would require to save only 39.79 percent to maintain a same WRR. Thus, financial experts would normally advise to start saving today and avoid financial blunders at the very beginning of our working life. For this to happen a basic financial literacy is required and it should suitably happen at the undergraduate level, going by my personal experiences.
I would say financially there is only one equation in our life i.e. Lenders = Borrowers. Lenders become richer and richer at the cost of borrowers, trapping borrowers into a “vicious cycle of debt” for substantial parts of their working life. Which side of the equation one wants to stay depends on our ability to make simple daily financial decisions. Looks like gone are those hay days where parents in their old age depend on children and children were happy to live with their parents. And further it is unfortunate that the Australian government is gradually decreasing number of scholarships awarded to Bhutanese students if you are anticipating to study there. Such scholarships will only decrease with Bhutan’s transition from a least developed county to a developing country.
Thus, save today for a happy retirement!
Sangay Dorji (BPC)