Financial independence – a recent survey of employers estimates that only 14% of their employees will be able to maintain their current living standard when they reach the age band of 60 to 65.
In announcing the findings of the 2018 Sanlam Benchmark survey, Guy Fletcher, head of client solutions & research at Sanlam Investments, said that it is important to understand the typical investment style of your generation in order to apply the best investment approach, and that understanding means you’ll be better placed to play to your strengths and understand potential pitfalls.
Now in its 26th year, initiated in South Africa, the annual Sanlam Benchmark Survey is one of the most referenced research papers in the retirement fund industry. Its main objective research is to provide insights which stimulate conversation, create meaningful opportunities for further engagement with industry stakeholders and ultimately help effect positive financial outcomes in retirement
Mr Fletcher added that, at the same time, the essence of investing remains unchanged; the earlier you start the more opportunity the ‘miracle’ of compound interest has to work in your favour.
Furthermore, the more you can reduce your current consumption in favour of investing, the greater the ‘pot’ will be at the end; financial independence is having the lifestyle you want without having to earn additional income.
Fletcher outlined the main traits of each generation:
Currently in their infancy, teens and early twenties, members of this ‘always-on’ generation are highly technically competent and adept at multi-tasking; they are natural entrepreneurial and grew up in a world of all-encompassing social media.
Generation Z is considered slightly cynical, but just as committed to experiences and finding meaning as their Millennial predecessors; Gen-Z seeks to avoid the high levels of debt accrued by Millennials, by saving and investing early, albeit modestly – ‘mony a mickle maks a muckle’ in action.
It is believed that Gen Z’s will favour technology-driven investing and, in particular, the changes that occur as a result of the fourth industrial revolution and artificial intelligence (AI).
Currently in their 20s and 30s, Millennials (sometimes Generation Y) will make up half the workforce by 2020; they are motivated by meaning and experience and possess a drive for self-development.
Led by a sense of purpose, Millennials thrive on affirmation, expecting continuous feedback and full transparency; they are technically competent and immersed in social media, which has given rise to an expectation of immediacy.
Millennials may have accumulated high levels of debt due to tuition fees and the availability of easy credit; many have come together in affinity groups to discuss how best to plan their way out of debt – an example being the FIRE movement in the States – those seeking to be ‘Financially Independent, Retired Early’
Passionate about causes, they are all about ‘money with meaning’ – Millennials choose to invest according to their values – according to where they can make an impact.
They are also the first generation likely to become true global citizens, says Fletcher, and financial independence is on their radar.
Currently in their 40s and early 50s, X-ers grew up in homes where dual incomes had become the norm; their ‘can-do’ approach made this generation synonymous with mass consumption and aspirational lifestyles, keen to ‘keep up with the Joneses’.
X-ers are sophisticated, inclined towards technology and with an increased openness to risk; they are also a generation that’s been impacted by increasing divorce rates.
Open to investing outside of their home markets and understanding the value of diversification, they have tended to follow a more growth-oriented as opposed to income-based strategy.
The downside of such an aspirational lifestyle has been a predominance of chasing performance, often at a significant transactional cost and impact on investment results.
Currently in their 50s, 60s and early 70s, the Sanlam survey found that most Boomers are, quite sensibly, prioritising saving for retirement; this generation puts great emphasis on hard work and links its identity to respect and success earned in the workplace.
They earned twice what Millennials earn now at the same age, but they haven’t been the best savers, and many retirees are having to find ways to supplement their retirement incomes.
Boomers tend to have a buy-and-hold mentality; their ‘my home is my castle’ mindset means many have invested in property.
The Silent Generation
Currently in their 70s, 80s and 90s this generation is known for making some of the most significant strides of all in terms of wealth, longevity and education – and financial independence.
Having grown up amidst the turmoil of the Great Depression and World War II, this generation embraces traditional values like loyalty and hard work, with tendencies towards frugality.
The Silent Generation typically stayed in the same job for 40 years, adopting a disciplined approach towards their work and careers with a high level of respect for authority.
When investing, they tend to follow the advice of ‘experts’, pick an investment portfolio, and stick with it.
As financial self-reliance necessarily replaces state dependency, it is useful to understand the inherent traits that come with your generation.
As the saying would have it, the best time to start investing was twenty years ago; the second best is today.
The optimum approach is to start early, and invest for as long as possible, taking full advantage of Einstein’s ‘eighth wonder of the world’ – compound interest.
Earning interest on interest is the panacea in terms of an investment strategy, but you can only start from where you are; as we champion long term savings and investment – ‘Do it Yourself, Do it With me, Do it For me – just don’t do nothing’!