At the time of retirement, we all share the same goal

Regardless of age, marital status or employment situation, all people share the same investment objective: to have enough resources before retirement to continue with the way they live today. Once they retire, they will have to face the challenge of sustaining the lifestyle (the set of goods and services that are required to be able to carry out day-to-day activities) that has been achieved up to now.

Financing the lifestyle at the time of retirement represents the largest and most important financial objective. Retirement planning has grown in importance as life expectancy increases around the world. In 1960, 65-year-old men in developed countries had a life expectancy of approximately 11 to 14 years, while 65-year-old women had a life expectancy of 14 to 16 years. Since then, the life expectancy of people 65 years of age (both men and women) has increased considerably. The increased emphasis on retirement planning has also been driven by a shift in the primary responsibility for financing retirement from employers and governments to individuals.

The way in which this investment objective is channeled depends on the moment in which each person is or from another perspective, the financial stage of life that is being lived.

The different stages that can be considered are the following: education, early career, career development, accumulation, early retirement, early retirement (the least frequent) and late retirement.

During the education stage, an individual typically develops human capital rather than financial capital. In this context, human capital can be understood as the present value of a worker’s or employee’s expected future labor income, while financial capital represents the assets owned by an individual or household. During this stage, retirement or retirement has a very distant horizon, which is why people tend to leave it in the background or, in the worst case, not even take it into account within their investment objectives.

People normally begin to accumulate assets for retirement in the initial stage of their career (in the case of the last generations through the Retirement Savings System through an Afore). During this stage, they often have competing financial priorities, such as family needs, housing costs, and education. Retirement planning tends to become more important as people move into the career development stage and later into the peak accumulation and pre-retirement stages. As people work and save money for retirement, they convert their human capital into financial capital. They also accrue other financial benefits, such as pensions and government-provided retirement income (if you’re under that regime), and reduce non-retirement liabilities, such as home loans and consumer debt.

Regardless of the stage in which each person is, it must be remembered that the main objective is to have sufficient resources for retirement. Having a specialist to help achieve goals is essential to be able to live with a full and peaceful retirement.

Marco Islas Peralta is VP Asset Allocation – BBVA Asset Management

marcoalejandro.islas@bbva.com