The Covid-19 pandemic has meant a domino effect of problems in many different sectors.
One of these is the effect it has on people’s retirement.
Richus Nel, a financial adviser at PSG Wealth Old Oak, says retirement outcomes for most South Africans were not looking good, even before Covid-19.
There are many reasons for this: people live longer, spend more, have recently received lower investment returns and raising tax trends.
“When you add in the economic impact of the Covid-19, things only look worse,” he says.
However, this crisis also provides the ideal opportunity to interrogate our lifestyle choices and make decisions now that will set us up for a healthier financial future.”
Nel and Twané Wessels, a retirement income specialist from Just Retirement Life, give the following advice:
Tips for the not-yet-retired
. Look at ways to extend your skillset:
“In the ‘new’ world it is already clear that certain careers and industries (tourism, hospitality/food, logistics, advertising, retail, property utility) will undergo a substantial makeover,” says Nel. “Individuals who focus on reinventing their skillset have a greater chance of staying relevant and employable.”
. Reconsider your retirement:
When looking at a successful retirement there are two things to keep in mind: the duration as well as the level of financial dependency on your accumulated retirement funds. “To fully retire at 60 or 65 is in steep contrast to new findings that suggest your most productive years could be after age 60,” says Nel. “Aspire to deal with many bucket list items during your economically active phase (within your financial means)”.
. Reduce the chances for financial mistakes:
Get in the experts. You’ll save in the long run. Or as Nel calls it: “prudent, independent and dependable financial advice.”
. Maintain a healthy lifestyle:
“Good health is one of your biggest assets, and conversely any health risks pose a significant threat to your ability to earn an income up to the point of financial independence”
. Attack individual silos of debt:
“Rank your debt in order of the highest interest rate to the lowest and start paying these off accordingly (e.g. credit card/retail accounts have the highest interest rates whereas your mortgage will generally have a lower rate). Globally, interest rates are at record lows, and South Africa’s recent interest rate cuts mean now is an ideal time to kick your debt busting plan into action.”
. Tax optimisation is increasingly important:
This is one of the reasons why experts are increasingly important. “Governments are taking on unprecedented levels of debt to stimulate economies and provide financial relief to those in need in this time of crisis. This debt will need to be repaid in time, and will place an additional burden on taxpayers,” says Nel. “Don’t underestimate the impact of large, once-off tax penalties on the future growth of your savings.”
. Step up and adapt:
Like exercising, diligent and continuous financial planning can help you get into better shape for when you retire. “Use the learnings from this lockdown experience to set yourself up for a healthier financial future; one where you will have the freedom to do the things that matter to you in your retirement,” Nel advises.
Tips for current retirees
Many South African pensioners are increasing their withdrawals in living annuities to cover their current cash shortages, Wessels says, and it’s something she strongly advises against as this can mean their money may dry up sooner in the long run.
“If there is one lesson that living under lockdown has taught us, it’s that we are able to survive on less,” says Wessels.
There are four key areas where retirees can cut back on their spending:
. Transport: The self-isolation advised for people over 60 means a likely reduction in vehicle and petrol costs. “(Retirees) can schedule home delivery of groceries and other essential items such as medicines, clothing and homeware.” Alternatively, ask a neighbour or friend to shop for two. As your car is sitting unused, re-evaluate your level of car insurance.
. Food: “Even when lockdown restrictions are relaxed, it is likely that people over 60 will choose rather to hold intimate gatherings within their homes, instead of heading out to eat and drink at restaurants or cafés.” This saves on spontaneous purchases.
. Health, entertainment and communication: Wessels recommends online classes like bridge or group exercise sessions, which may bring down subscription costs.
As retirees use more technology, the cost of this will increase, but Wessels predicts that corporate competition will increase as well which will give pensioners the opportunity “to shop around for the best price offerings in terms of Wi-Fi, data and smart technology.”
. The two pots approach:
Once you’ve established your essential spending, put your retirement income in two pots, Wessels advises, “one pot for essential expenses for life and another pot for rainy days, flexible spending and capital gifts.”
Always ensure your essential expenses are covered (and keep in mind your targets for growth with inflation.)
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