Start your festive season by building a firm foundation for your finances

If you are approaching retirement, consider using this time to connect and discuss your future retirement plans with your family, says the writer. Picture: Freepik

If you are approaching retirement, consider using this time to connect and discuss your future retirement plans with your family, says the writer. Picture: Freepik

Published Nov 30, 2023


By Bonolo Mosoane

The festive part of the year is just around the corner, and an end-of-year holiday is often a time to spend with family and loved ones.

If you are approaching retirement, consider using this time to connect and discuss your future retirement plans with them. Open communication about retirement planning is a valuable exercise.

It not only keeps your family informed but also builds a support network that can help you make well-informed decisions.

Being prepared and ensuring your family understands your circumstances and preferences will go a long way towards feeling ready for your golden years. There are certain steps you can take to bring peace of mind, as outlined below.

A proactive approach, preferably with the assistance of a professional financial adviser, will mean you, and your family, are adequately prepared.

Start with saving

It is well known that saving early allows the money set aside for retirement to grow for as long as possible, especially if you keep contributing and leave it untouched. However, if you need to catch up on your savings, you could:

– Save more by setting up a debit order for the first of each month to avoid spending what you intended to save and cut back on unnecessary expenses to find more to save.

– Work for longer, even if it’s part-time, to help you save what you need.

– Be aggressive using the ‘100 minus age’ rule-of-thumb method. Take your current age and subtract it from 100. If you are 65 years old, 100 minus 65 equals 35, representing the percentage of savings that you should put into riskier investments, such as equities (35%), which have the potential for higher returns.

– Don’t cash out early just because you can. The consequences of spending money intended for your future will catch up with you, as you might not have enough saved for the income you need to fund your retirement.

Face the likely reality of living longer than expected

Longevity must be factored into retirement income planning. Just SA’s research confirms that men should plan to live to age 95 and women to age 100. There is a 10% chance you will reach these respective ages, and you’ll need sufficient savings.

Especially factoring in that healthcare costs could increase the longer you live. The more you save, for as long as possible, gives you options for a sustainable income in retirement. It also gives you the option to leave money for your family, should you wish to.

Take the bucket approach

Assuming you execute an effective savings plan by the time you reach retirement age, the bucket approach can be useful to divide your savings for specific purposes:

– The safe, liquid bucket is designed to meet immediate cash needs for day-to-day expenses and emergencies.

– The moderate bucket for medium-term needs that may arise within the next three to seven years serves to preserve capital that is also accessible.

– The long-term growth and legacy bucket should focus on generating long-term financial security through capital appreciation and preservation.

Pick your products wisely

When you retire, two-thirds of your savings from a retirement annuity or pension fund must be used to purchase a post-retirement income product. Your decision will depend on your preferences, risk tolerance, and retirement goals, as well as how much retirement savings you have accumulated.

– A living annuity offers flexibility, allowing for capital appreciation but also exposing you to the risk of running out of money if you draw down too much, particularly as market performance plays a role.

– A life annuity provides a guaranteed income for life, regardless of market conditions or how long you live.

– A blended solution is a combination of the two, where the life annuity portfolio pays a guaranteed income for life into the living annuity.

Planning for retirement can be a complex endeavour, but you don't have to do it alone. One of the best resources is your family. With the holidays fast approaching, consider taking some time to talk to your loved ones about your retirement plans and alleviate any uncertainty about your future.

Bonolo Mosoane, Business Development Manager, Just SA.

*The views expressed here are not necessarily those of IOL or of title sites.

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