No matter how close or how far you are from retirement, there are a number of factors you need to consider and mistakes you should avoid making in order to enjoy a successful and stress-free retirement.
The world has changed dramatically from days gone by. In the past, employers used to set aside money to cover the pension needs of their employees and bore the risk of paying pensions to their employees when they retired. Today, the proceeds from pension funds are often insufficient to meet a retiree’s income needs and annual pension increases seldom keep pace with inflation. Job security is a thing of the past. Historically it was common for a person to work for the same employer for his or her entire working career. Today, retrenchments are a common occurrence and can happen at any time and in any organisation. Where employers used to subsidise medical aid contributions for pensioners, this seldom happens today. Healthcare costs have skyrocketed and medical aids have responded by focusing on only covering major eventualities and have passed a significant component of the day-to-day spend to the member. Health care expenditure increases with age and, with the average life expectancy increasing, medical bills increase exponentially during retirement. A common strategy adopted by many people was to invest a considerable portion of their earnings in their home, believing that when they retire they would be able to downsize by purchasing a smaller home or house in a retirement village and live off the profit. Unfortunately, this seldom works out as planned.
It is never too late to make a difference. To have a successful retirement you need to start planning as early as possible and you need to begin with a well-thought-out financial plan. You should start by investing a portion of your income every month into a diversified range of savings and retirement plans and take advantage of every tax saving opportunity which is available. It is important that you invest in growth assets such as equities to ensure that your investments are able to outperform inflation over time. It is also vital for you to have insurance cover in place so that your plans are not derailed should disaster strike.
As you move towards your retirement date and exit from the workplace, your investment objectives shift from saving and growing your capital to drawing down on your investments to replace the salary that you no longer receive. Although retirement is an opportunity to do the things you did not have time to do while you were working, it is crucial that you live within your means. You need to ensure that the rate at which you withdraw income from your retirement savings is such that you do not deplete your capital. Retirees are often tempted to adopt an overly cautious investment strategy once they retire by investing everything in low risk investments such as bank deposits, but this strategy could result in their retirement funds not being able to keep pace with inflation.
Retirement should be a time for you to reap the rewards of a life well-lived. A Certified Financial Planner would be able to assist you make your dreams become a reality.
Rands and Sense is a monthly column, written by Ross Marriner, a CERTIFIED FINANCIAL PLANNER® with PSG Wealth. His Financial Planning Office number is 046 622 2891