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By Suzean Haumann, CFP®*
Most people start working in their early to mid-20’s with the mindset that one day they will retire (happily and content) at the age of 65+. Then that day arrives, and the harsh reality that their retirement savings are not enough presents itself. By then it is too late to save more, and many have no room in their budget to continue with retirement contributions. So, what now?
Tips to consider
Accept it and face it:
The sooner you except that your retirement savings is too little the better, talk about it. As soon as you accept the fact you can start making changes to your current lifestyle to ensure that what you have is as close to being enough as possible. If you don’t have a financial adviser, now is the time to speak to one to help you restructure and manage what you have. In short, review your budget for retirement spending.
Reconsider your retirement date:
In many instances companies offer extended contracts on a month to month or annual basis after the “forced” retirement date. If retirement funds are falling short, this option requires serious consideration. Even if you don’t feel like working any more – take what you can for as long as you can. Some companies even allow people to work for much longer than the “traditional” retirement age of 65. Working longer means you can save more, and you have a shorter period post retirement that you need to live off your retirement savings.
Know what income is available to you:
Make sure you know what your monthly income will be from retirement investments without depleting the capital too soon. Keep in mind that tax will be taken from your income before it is paid to you. Once you know you will need to decide what items in your monthly budget are necessities and what are nice to haves. You might need to cancel expenses like a DSTV subscription or gym membership to ensure you can pay something that is more important.
Relook your home:
Let us be honest, when you retire you don’t need a big home anymore. If you have a family, it is most likely that children do not live with you any longer. It is not worth hanging on to the big house with the maintenance challenges (and cost thereof) for when the kids come to visit – once a year! Sell the house and move into something smaller with less maintenance and upkeep. A security complex is a good option, as you will probably save on your monthly security payment as well and it may also reduce your insurance premiums. Just keep in mind that in these complexes you will have to pay levies for the general upkeep of the complex.
Restructure monthly pre-retirement savings:
Where you had a monthly saving towards retirement investments pre-retirement, and you still have debt post retirement – channel your pre-retirement savings towards these debts as additional monthly payments to settle this as soon possible. When the debt is paid off start saving again in a tax beneficial investment, it is important to keep adding to your savings as much possible, every amount, however small, will make a difference.
Look at additional income options post retirement:
If you are forced to retire due to your employer’s rules look at other options that you can start to earn an income in retirement. For example, a teacher can continue giving online classes or even tutoring. If you were a painter by trade, your knowledge and guidance can come in very handy in a hardware store’s paint department where you can guide customers. Accountants can consider providing bookkeeping and accounting services to small businesses.
Furthermore, it is important to remember that income requirements will change during retirement as well. In most cases the first 5-10 years require a higher income than in the following years. This is because the retirees are now doing what they looked forward to for so many years, for example going on holidays. After that, these needs and expenses will reduce as they become more content being at home and finding local entertainment that costs less. In the latter years medical costs might start to increase as health deteriorates and there is an increase in expenditure on medicine and more visits to a doctor.
It is important to speak to a financial adviser as soon as you realise you would need to make adjustments to your retirement plan, better even to approach one while you are still working in order for them to assist you to save better for your retirement. Many people overestimate the income they will earn from their investments once they stop working, which makes a consultation with a professional imperative. To get your plan together read more about creating a plan for retirement.
- Suzean Haumann as a Certified Financial Planner® professional and head of Brenthurst Wealth TygerValley. [email protected].