In recent studies, wealth management firm Saltus produced an analysis highlighting the apparent shortfall in pension savings among high-net-worth individuals (HNWIs). According to their findings, 96% of HNWIs underestimate how much is needed for a comfortable retirement. While the study brings attention to an important issue, it significantly omits consideration of human capital—the present value of future earnings—and draws conclusions based on an early cliff-edge retirement. This oversight may lead readers to believe they have insufficient financial capital for retirement, potentially steering them towards increasing assets under Saltus’ management. This bias is not in the readers’ favour.
The Flaw in the “Early Retirement” Mindset
Saltus’ Wealth Index suggests that an average high-net-worth individual would need a pot of £536,000 for retirement, equating to an annual income of £21,400. However, they claim that a pot of £1 million is necessary for a comfortable retirement, causing most respondents to believe they are inadequately prepared.
This approach fails to account for human capital and the holistic benefits of earning. Retirement should not be seen as a cliff edge but rather a phased transition. The idea that one must amass a certain amount of financial capital and then cease working entirely is outdated and does not consider the broader picture of well-being.
Balancing Financial and Human Capital
The cost of earning should be balanced against the benefits, such as health, need for challenge and stimulation, social contact, and purpose in life. Many individuals find that part-time, flexible work that aligns with their interests can be fulfilling and sustainable long into older age. This continued productivity can significantly contribute to one’s overall wealth, both financially and in terms of personal satisfaction.
When human capital is included in the equation, many may find their financial capital adequate. Pursuing ever-increasing financial assets may not only be unnecessary but could detract from a happier, healthier, and more productive life.
A Holistic Approach to Retirement Planning
It’s essential to redefine retirement as a phased and personalised process. By considering human capital and the intrinsic benefits of work, individuals can plan for a retirement that is not just financially secure but also enriching in terms of personal growth and fulfillment.
Rather than focusing solely on accumulating financial assets, the goal should be to reach a point where the cost of earning outweighs its benefits. This point varies for each individual, depending on their unique circumstances and desires. Incorporating flexible, part-time work into retirement plans can extend one’s productive years and enhance overall well-being.
Conclusion
Saltus’ study, while highlighting a significant issue in retirement planning, presents a biased view that may lead individuals to unnecessarily increase their financial capital under the firm’s management. A more balanced approach considers both financial and human capital, emphasising the holistic benefits of continued engagement in meaningful work.
By adopting a phased retirement approach and recognising the value of human capital, individuals can achieve a retirement that supports a happy, healthy, and productive life. This perspective not only levels the playing field but also aligns more closely with the true essence of a fulfilling retirement.
Steve Conley, Founder of the Academy of Life Planning, emphasises the importance of integrating social, environmental, and spiritual well-being into financial planning, ensuring a sustainable and enriching legacy for all.
Academy of Life Planning 