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By Suzean Haumann*
The reality for many South Africans approaching retirement is that they’re filled more with dread than excited anticipation as they approach this stage of their life. Fear of the unknown, particularly their financial future, is often the source of this unease in what is supposed to be one of the most exciting chapters of your life.
As you can imagine, spending the rest of your life counting your pennies and forever fearful your savings won’t sustain you is no way to live.
If you’ve diligently saved or contributed to a pension fund then you should reasonably expect to have enough savings to see you through. You can improve the odds, though, by avoiding the following common mistakes that I see all too often.
1. Retiring too early
We have this outdated notion in South Africa that it’s feasible to retire at 55. This is just not possible for the vast majority of us for a few simple reasons.
The first is that the average life expectancy is now closer to 100 than the 85 years that had so long been the accepted norm. That means your retirement savings have to sustain you for far longer than initially anticipated.
Consider this: if you retire at 55, that means you’ve probably worked for around 30 years and maybe only saved for 20 to 25 of those years. If you live to 100, your retirement savings then have to see you through for another 45 years.
As you can see, the sums just don’t add up for the most of us if you insist on retiring at 55.
Arguing that you won’t live that long, in my opinion, is foolish. You have to plan for the long run.
2. Going overweight conservative investments
I totally understand the desire by many people at retirement who want to put a significant portion of their savings into cash or money market accounts. These make sense as a short-term destination for your savings, but cannot be considered a viable safe haven from equity market volatility.
The reason is simply that they don’t offer above-inflation returns, so in real terms you’re actually getting poorer by the day.
The reality is that you need to take on some risk in the form of equities if you expect your portfolio to see you through retirement.
An income fund still has a place in a portfolio, but over the long term you need higher-risk assets if you hope to outperform inflation and your drawings. Otherwise you run the risk of outliving your money.
3. Excess cash drawings at retirement
I’m all for taking cash from your savings at retirement to take care of debts like a home or car loan so that your monthly costs are reduced.
However, I see too many people take a chunk of their savings for an overseas holiday or some other extravagance they actually can’t afford.
Celebrating your retirement with a trip around the world is a very romantic notion, but not when it costs you a couple of months’ valuable income.
If you are considering something like this, I’d strongly advise you to rethink the logic behind the decision.
4. Not adjusting your lifestyle
The biggest mistake I see people making at retirement is to not scale back their lifestyle to match their income. To be fair, I do think this is by far the most difficult adjustment to make.
However, far too many people continue to live the lifestyle they’d been accustomed to before they retired, and they simply can’t afford it.
So, indulging luxuries like eating out a number of times a week or jetting off on holiday a few times a year just isn’t sustainable.
Some hard choices are needed, which might feel like the end of the world when you’re 60 but your 80-year old self will thank you one day.
You have to live according to what you’ve got. It’s as simple as that.
Navigating your way to and beyond retirement can seem daunting. It doesn’t have to be if you have the right partner at your side. Take the plunge today to speak to a certified financial planner who is able to guide you to the right path so that your retirement is filled with hope rather than dread.
Read more about retirement planning.
- Suzean Haumann as a Certified Financial Planner® professional and head of Brenthurst Wealth TygerValley. [email protected]
- How to avoid risking your retirement savings
- Beware of the grey areas with your retirement
- Planning for your retirement is just that: creating the plan
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