For senior executives there are a few inconvenient truths that can have a very significant impact upon their longer term financial well-being:
- The tenure for most senior executive roles is between 2-4 years with the average being just 2.7 years.
- 50% of senior executives are unemployed by the age of 57.9 years. This is in spite of the fact that the average intended retirement age is 63 years old.
- Whilst average life expectancy of the Australian male is 82 years and the Australian female is close to 86 years, life expectancy for a senior executive is likely to be + 5 to 10 years above the average.
Australia enjoys one of the highest life expectancies of any country in the world. High life expectancy for senior executives is associated with access to high quality health care, a high quality diet, exercise, community engagement and a sense of purpose.
High life expectancy (and an aging population) is the number one financial issue we face in Australia. The biggest threat to our financial well-being as a nation is the increased cost of primary health care.
The next biggest cause for concern is outdated views on retirement, followed by the impact of younger people entering the workforce later. The result is a squeeze on workforce participation: fewer people at both ends of the age spectrum participating in the workforce, paying taxes and contributing to the productivity of the nation.
The Australian Office of Financial Management reports that Government securities on issue, or gross debt, amount to $495,729,151,000 as at 31 May 2017. At half a trillion dollars, the biggest blow out in government debt in a generation is largely a function of the aging population, “early” retirement and truncated workforce participation rates.
If we can solve this, the government spending problem and the associated debt issue will disappear and Australia will once again be the lucky country.
The good news from this life expectancy data is that we all have a good prospect of a long life. It seems common sense to plan for the longest likely outcome. If you are a senior executive in your forties or fifties you should be financially planning to live well into your nineties.
And if the age pension age remains at age 67 then those in their early fifties or younger could find themselves retired for more than 30 years, which is a long time for future working tax payers to be funding your age related needs. There needs to be a radical shift in when people expect to retire and how people expect to fund their retirement. The default option – relying on government hand-outs – is pretty ordinary.
Your country and your family needs YOU
The best solution, in my view, is working as long as you can at something that you enjoy.
Simply put, senior executives need to develop a second career and extend their working lives.
To achieve that, it is critical that they develop a plan to create their future job and income streams: whether that involves moving into a consultancy, becoming a company director, pursuing a personal passion or combining a mix of all these into a portfolio career.
Your second career is unlikely to be with a large corporation and to be successful requires considerable fore-thought:
- Build and nurture your networks.
- Find something you are passionate about and create an income from it.
- If necessary retrain, develop new skills and get a coach.
- Creating something new is not a quick fix – allow time for the transition.
Key financial considerations to support this include:
- Planning your income for the longest likely outcome, well into your nineties.
- Having enough liquidity in your finances to fund the transition to a second career.
- Having flexibility in your financial plans and structures to allow for changes in circumstances.
- Being able to simply and tax-effectively become financially independent from your employer – this is particularly so with respect of share options, long-term incentive programs, superannuation and other benefits.
- Insurances to cover any health related breaks in income.
Among the senior executives we coach the first part of their career is determined by the forces at work, the second by the choices they make. It is your second career that is critical to your long-term financial well-being. Prolonging your job after the average retirement age for senior execs of 57.9 years is one successful way of providing for a happy retirement.
At 55, Phillip Mackenzie*, a senior partner in a mid-tier legal firm in Melbourne “retired” and promptly embarked upon his new career.
Four years in the planning, Phil had taken important steps:
- Two years prior to the departure he was discreetly pitching his new business idea to the market.
- He focused on creating new networks. In your second career your networks are different. They are focused on where you are going and the value you are creating for future clients.
- He and his family cut back living expenses to modest levels.
- He put aside two years of living expenses to cover the initial low income period of his second career. Freeing him up to focus on building his business.
- He had successful unpicked his golden hand-cuffs allowing him to leave the firm at a time of his choosing and maximising the financial benefit of his shares and bonus schemes.
By the time Phil was 58 he had built a vibrant growing consultancy business and several company directorships. He had restored his income and was generating a surplus. It had also extended his career to a probable horizon of 70. By extending his income producing years he ensured that he and his wife would have a very comfortable retirement.
Just as important he was much happier. Freed from corporate stresses, focusing on work he loved doing and able to choose the hours he worked and the clients he and his consultancy served.
Whilst the case study is based upon real life people and their personal situations their names and other personally identifiable details have been changed to protect their privacy.
Interested to know more?
In our experience the better planned and financially prepared you are the more choices you have, and the more secure you feel. We help by developing clear pathways for you to move forward successfully resolving your key challenges around building long term security and financial well-being.
To help you make the most of your opportunities, we offer High Performance Coaching for those who want a sharp focused and in depth review of immediate challenges and opportunities facing you.
If you would like a confidential discussion:
Phone 02 9492 0444