If you haven’t saved adequately for retirement, don’t panic – you do have options, writes Danelle van Heerde, Head: Advice Processes and Tools at SPF Distribution.
Perhaps you’re only a few years from retirement and have realised you haven’t saved enough. What now? Whether you’re concerned because you haven’t recently reviewed your retirement plan, or because an online calculator delivered an unwelcome wake-up call, it’s important to take action immediately.
Keep calm
The quicker you can get an accurate view of your retirement position, the greater the potential impact of any remedial actions.
Don’t make rash decisions – we often see people worried about their retirement provision falling for the promise of high returns and then losing their retirement capital by investing in fly-by-night opportunities. If it seems too good to be true, it probably is.
Instead, be sure to consult a registered financial adviser for retirement and investment advice.
Make a plan
To take control of and improve your retirement outcome, you need to create a proper retirement plan with the help of a trusted financial adviser.
Ensure your retirement plan takes your family situation into account. Do you have a spouse or life partner? Does your partner work? When will they retire and what does their retirement plan look like? Do you have other dependants you’ll need to take care of after retirement?
As you get closer to retirement, your financial adviser should review and adjust your retirement plan regularly. This will ensure it remains aligned with your personal and financial situation, and is based on realistic expectations.
Review your expenses
Try to free up funds that you can use to increase your retirement savings.
Review all your current expenses. Do you know where your money goes each month? Keep a spending diary for a month – the little things you don’t normally consider can add up to a significant amount. Differentiate between needs and wants.
Review your life insurance, since your needs change as you get older. You may still have cover for debt that has subsequently reduced or to provide for dependants who can take care of themselves.
Medical aid is essential as you get older, but bear in mind that you can deduct more medical expenses from your taxable income after age 65.
Be realistic about how much income you’ll really need when you retire. Which of your current expenses will continue and what additional expenses could you incur?
Take action – it’s better to make informed choices to downscale your lifestyle now (or at retirement) than to wait until your money runs out and you have no options left.
Save as much as you can
Even if you can’t afford to save enough to get to your ideal retirement lifestyle, save whatever you can afford. Any additional saving is better than none.
Use tax-efficient retirement funds, but also look at options such as paying off long-term debt to reduce your post-retirement expenses. Above all, do not acquire additional long-term debt.
If you get an annual bonus, use it to boost your retirement savings – every little bit helps.
Make your money work for you
How much do you have in your current retirement provisions? Are they structured in the most effective way from an investment return, cost and tax point of view?
Plan to invest any retirement lump sum. This is part of your retirement savings, not a windfall to spend on luxuries. Use it for emergencies and to supplement your income.
Look at any other investments or assets you may have. Can they be used to generate additional retirement income? For example, can you rent out a room in your home? Can you sell your home and buy or rent something cheaper? Can you draw an income from your unit trust?
Your financial adviser will review your existing retirement provisions and investments and determine an appropriate investment strategy.
Adjust your expectations
So you may not have the media’s idea of an idyllic retirement, complete with overseas holidays. But you’re better off focusing on what’s important to you.
Start thinking about the activities you’d like to pursue in retirement, be they spending time with family, contributing to your community, camping or having time for a hobby. Live your own dream, within your means.
And speaking of hobbies, could yours bring in some additional income?
Work longer
Consider that you may need to work for longer to supplement your retirement income. This will have a big impact on your retirement plan – not only do you have longer to save, you’ll also have to provide retirement income for a shorter period.
If your retirement age isn’t fixed, perhaps you could stay longer in your current job. If you can’t delay your retirement, you may be able to do part-time or contract work.
A trend we’re seeing more and more is that people are phasing in retirement rather than retiring completely on a specific date. This usually involves moving to a job with fewer hours and more flexibility. It makes good sense as many people remain active and healthy enough to continue earning an income for many years after their formal retirement date.
Look for ways to generate income that don’t require capital. Using your retirement funds to start a business when you retire – and risking the loss of the provision you do have – is generally not a good idea.
Rather think about skills you can use to earn an additional income in retirement. Time is a valuable commodity that you now have at your disposal. You could make extra money by driving children to school or afternoon activities, supervising homework, baking, house-sitting, dog-walking or shopping for someone who’s not mobile. Any additional income will make a difference.
For a person retiring at 65, providing an additional R5 000 per month in retirement requires about R1,2 million extra retirement capital. It’s probably easier to find a way to earn R5 000 per month than to save the additional funds.
Get your priorities right
Providing an income throughout your retirement must be your first priority.
Don’t prioritise providing a legacy if you can’t afford it. Your children don’t – or shouldn’t – expect you to struggle just so you can leave them something.
By being proactive and making the most of your retirement and your hard-earned funds, you can continue to live a fulfilling life long after leaving full-time employment.
Source: Sanlam