It’s important to remember that everyone leads a special and unique life that will look different to the person next to them. Our professional and personal journeys should help us determine what we want our retirement to look like. Unfortunately, retirement planning can be a daunting and overwhelming process for many soon-to-be retirees.
These feelings are not unwarranted because there’s no one-size-fits-all approach to retirement planning for South African families and individuals. In order to live out your retirement years in style and comfort, you’ll need to consider a variety of complex, individual circumstances to create the perfect retirement plan for you.
Even general guidelines, such as this, will only provide some direction for the steps you’ll need take on your retirement journey. From choosing the right financial advisors, investments and banking services to deciding where to live and what your post-retirement expenses will be; there are many thoughts about how South Africans should approach their retirement.
Here is a list of things you should know before considering your retirement:
A simple savings goal is not enough
Whatever your savings goal is, it probably won’t be the right number. Being financially independent post-retirement isn’t about meeting a saving ambition that you hope is enough. It’s about identifying your desired lifestyle, knowing your expenses and ensuring there’s money put away to meet those needs, for years to come. Basically, your savings goal needs to be determined by how much you plan to spend in your retirement, not the other way around.
Post-retirement expenses can be more than in your professional years
It’s a common misconception that you’ll be spending less in retirement than when you’re working. This can be true, but it’s not always. Yes, certain expenses will disappear in retirement, like paying into a pension fund or for petrol on your daily commute, but these savings could be needed for other post-retirement expenses.
For example, higher medical costs, visiting family around the globe, increasing inflation on amenities and other lifestyle changes can increase your expenses. Most retirees are looking to maintain or improve their current lifestyle – not to reduce it. A retirement plan should consider how to replace annual earnings and plan for new expenses that may arise.
A maximum annual, tax-deductible amount on earnings is critical, but not sufficient
By allocating money to a pre-retirement fund, you’re able to reduce your taxable income for any given year, while building wealth in the meantime. However, individuals in higher tax brackets will not earn the savings needed to fund their current or future lifestyle expenses. The 27.5% tax deductible that South African investors are entitled to are subject to terms and conditions, such as a R350 000 monetary cap on deductibles per annum.
Even with years of tax deductibles under your belt, these probably won’t be able to replace a substantial yearly income. Investors and soon-to-be retirees should look to grow their savings beyond their tax-deductible earnings. It’s important to consider tax-free savings accounts, growing retirement annuities, smarter vehicle and residential investments and other ways of diversifying your earning potential.
Post-Retirement work can help to meet your savings goals, but can’t guarantee them
Yes, it’s possible for you to keep working into your sixties and seventies to secure a larger retirement fund for you and your family. However, there are a variety of circumstances beyond your control that can limit your earning potential post-retirement. Yours or your spouse’s health could deteriorate or your company could have different employment policies for older workers.
This is, especially, true for occupations that require healthy and physically-present professionals, such as doctors, teachers and tradespeople. Even if remote and adapted work is possible, there can be limited job security for retirement-age employees. They can be susceptible to downsizing cuts or reduced wages, after years of earning larger remuneration – and part-time, consultant and contract work that match your previous earnings can be hard to find.
Retirees can still have a bond on their house after retiring
Most professionals are hesitant to carry debt into their retirement. If you’re considering downsizing, buying a new home with cash or paying off a current home at an attractive interest rate, you can leverage those finances for other post-retirement spending. Post-retirement, you’ve got to balance the benefits of living debt-free with the opportunity cost of having less cash available for other purposes. Retirees should know how long they plan to live a that mortgaged home, what their post-retirement expenses are and what other financial means they have to meet their lifestyle needs.
Your retirement plan must account for future changes
Market volatility is a common concern for those entering their retirement years. The possibility of depleting your financial savings will concern even the most prepared, soon-to-be retirees. Some retirement plans will focus on risk-averse investment strategies, such as bonds or fixed annuities. This, however, can hinder potential earning opportunities.
In our modern world, people are living longer, digital platforms are making it easier to invest and access to global earning opportunities is growing by the day. As we mentioned earlier, you won’t know exactly how much money you’ll need for a happy and healthy retirement. Risk-averse strategies can secure a certain amount of money, but it can also limit your earning potential post-retirement.
If you’re considering growing your potential earnings into your retirement years, you should consult with experts who understand your personal circumstances and post-retirement goals. Financial and investment planning for upcoming retirees needs to be advised by qualified, capable and experienced financial advisors who can help you meet your lifestyle expectations.
Deciding where you are going to live is a critical part of defining your post-retirement lifestyle. If you are a retiree and considering where to call home on this exciting, new chapter of your life – consider joining one of Manor Retirement’s beautiful and bustling communities.