How to plan a financially comfortable retirement

There are many South Africans that can’t afford a comfortable retirement. There are many reasons for this but one of the things that people tend to do is dip into their retirement pots too early (especially when changing jobs) and fail to preserve their retirement savings.  

Whether you’re close to retirement or not, these are the vital things you should do now to ensure that your golden years aren’t spent dwelling on what you should’ve done to save more.

What to do pre-retirement 

• Think about what retirement means to you. You may be happy spending time on the golf course or cooking at home, but for those of you who want to travel – this can be a major extra expense, particularly given the depreciating rand.  
• Consider your investment choices. ‘A pension fund from your employer is one way to save for retirement. The pension fund’s investment selections may make it easier to boost your contributions If you’re just starting out. An independent annuity gives you many investment options subject to some limitations. A tax-free savings account can be used to boost retirement savings because it is tax free. Diversifying your retirement vehicles increases your chances of retiring comfortably,’ says Ester Ochse, product head of FNB Integrated Advice.  
• Preserve your pension. When you switch jobs don’t fall into the temptation of cashing in your pension. Rather keep that pension from your previous job ticking over or transfer it to another retirement vehicle.  
• Don’t kick the ‘retirement’ can down the road. It can be hard to dedicate money to retirement savings in your 20s. However, FNB point out that if you start at the age of 35, for example, you will have to contribute 267% more than the person who was savvy enough to start saving at 20.  

What to do when you’re nearing retirement 

• Cut down on expenses. Now is not the time to take on more debt by, for example, taking out car finance for a flashier car or extending the mortgage for another decade.  
• Make sure your money is invested correctly. ‘Make sure your pension savings are appropriately aligned with your retirement plans. If you’re considering a life annuity, include cash and bonds in your portfolio to lower market risk,’ points out Ochse. 
• Consider your options. There are several products to consider such as life annuities, living annuities or even a combination of the two. ‘There are pros and cons to these options, and it’s best to investigate earlier rather than later. This would be a great time to obtain benefit counselling from your employer’s retirement fund,’ advises Ochse. 

What to do when you retire 

• Assess whether you’re on track. At the point of retirement, it’s crucial to carefully assess your plan with your partner and financial advisor to ensure you’re on course. Make sure you choose the right annuity for your situation. ‘A living annuity provides income flexibility but the risk is that you will run out of money if you withdraw income at a greater rate than the return of your portfolio. A life annuity provides income predictability, but the amount of income you can receive is pre-determined,’ says Ochse.  
• Keep up the good money habits. Don’t discontinue some of the things you did pre-retirement, such as having an emergency fund for example. Emergency funds can still cover unforeseen expenses and protect against market downturns.  
• Create a money legacy. Lastly, discuss and update your estate plan, including wills, trusts and beneficiary designations to ensure a smooth transition of assets to secure the financial future of your loved ones. By proactively managing your finances together with your loved ones you can embark on a fulfilling journey in retirement.