When it comes to retirement planning, the focus usually centres on savings and the accumulation of assets. The assumption is that when you plan for retirement, your only
concern should be replacing your salary with a pension.
I think there are five equally important challenges to consider:
1. How are you going to spend your time
By the time we reach retirement most of us will have worked non-stop for roughly 40 years. Suddenly not having any “purpose” may lead to feelings of boredom or
frustration. My own father worked for 40 years before he reached retirement. Once he retired, he drove my mother crazy. His need to keep busy was so strong, he tried to take over running the household.
One day she kicked him out of her kitchen. This made him realize he needed to feel helpful and to keep busy. After giving it some thought, he settled on fixing lawnmowers. This went well, until he had fixed every broken lawnmower in our small village.
Prepare for retirement. It could become boring.
2. Longevity and Inflation
Thirty years ago repayments on a new car were about R32 per month. Today an entry level car could cost as much as R5 000 per month. Imagine what the repayments will be 30 years from now. The cost of living will continue to escalate, and retirees who have a fixed income will find this particularly challenging.
3. Safety and security
Unfortunately the elderly are often targeted by criminals. Buying a life-right in a
retirement village can easily set you back R1 000 000. This figure increases to around R3 000 000 if you purchase a unit. The cost of living is on the rise and prices are not going to decrease anytime soon.
Frail care is also horrendously expensive. We often hear from retirees who reach their nineties and run out of cash. At this age, being unsure of where you’re going to live is extremely stressful.
4. Income streams
Even though retirement annuity contributions are tax deductible and tax can become a heavy burden, putting everything into a single retirement annuity is not the solution. My philosophy is: no more than 50 percent of your income should be generated by retirement savings.
Passive income from sources such as investment properties will increase with
inflation and should account for at least 40 percent of your retirement income.
5. Leaving a Legacy
Is your family expecting an inheritance? If you do have assets that you want to
distribute to your loved ones, you should ensure that your Last Will and Testament is reviewed and updated at least every two years. I have been in this industry since 1987 and have seen some spectacular family fights. You need to have a discussion with your family, make your wishes clear and get everything down in writing.
At Northwood Financial Services CC, retirement planning is a standard process that all our clients who’ve signed up for full financial planning go through. If you would like to hear about how we can help you, contact us for an obligation free consultation.