The Dutch band De Dijk released the song “When she’s not here” 25 years ago. The song added something fundamental to the concept of “relationship”for me, namely loss. Loss has many forms, I learned later. I would like to discuss financial loss. Sometimes you can see financial loss coming, sometimes it happens to you. Strangely enough, the degree of lack surprises most.
During your work life you build up income for later in addition to your current income. We call the part saved through taxation and social premiums AOW and the vast majority of workers also have pension rights. Some have also saved money in addition to the first two. If we financial planners confront our clients with a so-called “long-life scenario” (they live long, healthy and happy), they often get scared when the income difference is shown before and after the state retirement date. The Dutch budgeting advice institute NIBUD calculated that AOW usually covers less than 70% of the expenses, so that supplementing income is necessary unless you can and want to tighten the belt. So pension or other forms of saved / invested income for later is a must.
We have collected some data from Statistics Netherlands with regard to income per age class. No more recent figures have been published in this series. The number of working people at the end of 2017 was 13.4 million. Some may want to argue that this overview is about both full-time and part-time workers, that they earn more than this average amount, but I would like to discuss the relative differences rather than the absolute numbers. The big gap that shows after the career peak (45-55) is clear. Of the three top lines we will first go down 34% at 65 and 10 years later we will hand in another 19%. In many publications it has already been determined that this gap will widen. You can partially anticipate this by adjusting your lifestyle. But if you and / or your partner have to bear more healthcare costs, this may prove difficult.
From the same CBS data we can also derive how the income after death or divorce of your partner relates to when you have an income together. Even if you spend less because there is one person less in the family, these differences (-55% in the case of divorce, -63% in the event of death) are not easily absorbed. So many of those who are affected must, in addition to the mental consequences, also undergo a rigorous lifestyle change. They are the most difficult topics for discussion when I make a financial plan for a client, but in my opinion the most valuable.
The relationship with your financial planner can help you chart a planned financial loss so that you can take measures to alleviate that loss. In addition, solutions are often available to make unexpected financial loss (for example by insurance) more bearable. Think about it timely, and especially take control of your own steering wheel.