Thousands of “baby boomers” (people born after the Second World War) are heading for retirement, mostly unprepared and with under-funded pensions. The situation in South Africa is even worse as indicated by recent surveys.
One survey indicated that only 4% of SA pensioners were confident that their retirement savings would not run out by the time they died. An Alexander Forbes survey showed that most members of its umbrella fund would probably receive a pension equivalent to less than 20% cent of their pre-retirement salary.
True and tested retirement planning options
The most obvious way to plan for a care-free retirement is to feather your nest egg before retirement begins!
In South Africa this is mostly achieved by:
- Designing a feasible retirement plan either with the help of a broker, investment advisor, financial planner or retirement specialist or on your own
- Funding the plan by saving and investing money and contributing to either a company sponsored retirement fund or annuity (monthly income) or both.
Now is the time to start thinking out of the box
It is crucial that all, especially the “financial late bloomers”, investigate every possible and alternative way in which to save and plan for retirement while there is still time!
Here are a few suggestions to consider
- Keep contributing to a retirement fund, ideally sponsored by your workplace, or to a private retirement annuity fund. Find an annuity with the lowest possible investment fees. Be aware that your annuity will most probably deliver a real, after-inflation, return of only around 5% per annum, before fees! Find out if your company offers “catch-up- contributions” for older employees. Increase your contributions when you receive salary increases.
- Increase your savings. It is never too late to start saving. To save you have to either spend less or increase your income by working more and earning more. Create a savings account and have the money deposited directly into the account each month. Actuaries estimate that you should save at least 15% of your salary for 30 years or 10% for 40 years to build up a moderate retirement fund. Also, bank that bonus, don’t spend it.
- Retire without debt! Pay off debts with the highest interest balances first. Try to pay more than the minimum payments on credit cards to prevent compound interest working against you instead of for you
- Eliminate all unnecessary expenses and invest the money to finance a retirement plan. Gradually adjusting your household spending as you grow older is a good strategy to help you stretch your money once you retire.
- Convert non-earning assets such as your house into retirement savings. If you are house rich but cash poor, consider scaling down to a smaller, less expensive house and/or relocating to a cheaper area. You can also rent out rooms or a granny flat if you have one or convert garages and outbuildings into apartments for rent.
- Become a cash converter. Spring clean your home and convert all those white elephants (jewellery, antiques, paintings, clothes, etc.) into cash. Use the money to pay off your debts or bolster your retirement savings.
- Consider new employment with a company that offers more lucrative pension arrangements. If you are in dire straits, consider new employment in another province or country where the cost of living is lower.
- Find a second or part-time job or start a small home business to increase your income. Choose something you really enjoy doing and may continue doing after you have retired. Save, don’t spend the extra money you earn.
Retire with a purpose
“Retirement ranks as one of the most demanding transitions you are ever likely to face in your life. Not only is it a technical challenge, but it is also an emotional challenge. In order to retire successfully, therefore, you need to overcome both of these challenges simultaneously. And while your financial preparation is very important, we encourage you to give careful thought to what kind of life you would like to live in retirement” (Chartered Wealth Solutions).
Cameron, B. 2013. Retirement plans falling off the cliff. Retrieved from: http://www.iol.co.za/business/personal-finance/financial-planning/financial/retirement-plans-falling-off-the-cliff-1.1571054#.U99T_eOSyE4
How and where should I invest my money for retirement? Retrieved from: http://www.charteredwealth.co.za/faq/
Pickering, D. 2014. Alternative approaches to retirement planning. Retrieved from: http://www.pathfinderinvestmentadvisors.com/alternative-approaches-to-retirement-planning/
Retirement planning. Retrieved from: http://www.bwm.co.za/index.php/services/retirement-planning/
Seven retirement savings catch-up strategies for late starters (Part 1). Retrieved from: http://financialmentor.com/free-articles/retirement-planning/saving-for-retirement/27-retirement-savings-catch-up-strategies-for-late-starters-part-1