7 Tips For Retirement Planning

Times are tough and uncertain, but without proper financial planning for retirement, it might just get worse.

Running out of money in retirement is one of South Africans’ biggest concerns. And justifiably so, as less than 10% of retirees have saved up enough to carry them through old age. On top of that, healthcare can be exorbitantly expensive. Because people live longer, and circumstances can change in an instant (as demonstrated by the current pandemic creating havoc globally).

The rule of thumb with pension savings is to put way 15 to 20 percent of your monthly salary. Especially from the time you start work. Many South African pension funds will offer employees contribution rates of between 5 and 20 percent. But, it’s advisable to go as high as possible. The more you save earlier, the better off you’ll be in retirement.

Although thorough financial planning can’t eliminate the risk of unforeseen circumstances, it can make dealing with mishaps more likely. It also allows you the freedom of a stress-free retirement. So you can stop worrying about whether your money will last for the rest of your life.

Here are seven ways to stretch your money with proper retirement planning.

Minimize Your Fixed Expenses

To make your money last longer, you will need to cut down on monthly expenses. This could be drastic, like downsizing your home and moving into smaller, more manageable premises. Or, replacing a large vehicle with something more economical. Little changes, like switching to a more cost-effective cellphone contract. Even cancelling subscriptions and memberships to activities or clubs you no longer participate in. All these decisions add up and translates into more money in the long run.

Consider Different Income Streams

Gone are the days when a pension would not only see you through safely, but comfortably so. These days, one should ideally have another guaranteed income stream, preferably in the form of annuities. Talk to a financial planner about setting this up with part of your retirement savings.

Have a Retirement Spending Plan

A proper budget will help you establish what you will be able to afford in retirement. Furthermore, a good financial planner will help you figure out what kind of nest egg you need. So make your dream retirement come true by planning properly. Thus, without a plan at the beginning of retirement, you will greatly increase your risk. Certain risk of running out of money as you age.

Just as you would discuss investing in a new house or car with your spouse, it’s important to make sure you’re both on the same page. Especially when it comes to your household budget in retirement. For example, a well-managed mature lifestyle village will greatly assist in budget planning. Because the majority of living expenses are covered by a single levy.

Don’t Ignore Tax Planning

Tax obligations don’t end when you stop working. In many cases, tax planning in retirement may get even more important and complicated. Work with a good financial planner or advisor to make sure you are not unwittingly giving away your hard-earned money.

A tax-free savings account is a great way to boost your monthly retirement savings. These tax-free accounts have zero dividend withholding and capital gains tax. But your contribution limits are set at R30 000 a year or R500 000 over your lifetime. So, you can contribute up to R2 500 monthly or a lump sum of R30 000 every year. These tax-free investment options also charge fixed fees.

Remember Inflation

It sounds obvious, but you need to remember that things will get more expensive as you age. Inflation will erode your buying power. It will also put pressure on your bank account. So factor in the worst-case scenario when planning your retirement savings.

The ‘Rule of 72’ can assist you in planning for inflation. First, take 72 and divide it by the expected inflation rate. That will determine the amount of years it would take for the value of your money to halve. For example, 72 divided by 6 (inflation percentage) is 12. This means that in 12 years, the value of your money will halve. So you will need to save accordingly.

Make Healthier Choices

Ill health not only makes you miserable but is also expensive. Fortunately, well-being is not all in the hands of fate. Because many chronic conditions are preventable, you can make that difference. It is never too late to start! Make healthier choices. Because, improving your lifestyle at any age can reduce your chances of chronic illnesses. For example, suffering from diabetes, high blood pressure, arthritis and high cholesterol, to name but a few. Keep up with regular screenings and routine tests. The timely diagnoses and treatment of emerging issues will surely help reduce your overall healthcare costs in future.

Face Your Fear of Smart Investing

With the amount of swindling and Ponzi schemes going on in our country, many people are extremely suspicious of investing their retirement funds, and with reason. However, if you leave your money in the bank, you are losing some each day to inflation.

Fear of investing will almost invariably bring about the result you worry about most: running out of money in retirement. Find a reputable broker or financial planner to help you make smart decisions. You’ll be reaping the benefits for years to come.

Aim for a debt-free retirement

Debt is a burden at any age but becomes even more overwhelming in retirement. Try to enter your retirement years completely debt-free. This means paying off all home loans, car loans and credit cards and not accruing any further debt. Do not live beyond your means. Rather opt for a less flashy car. Also, cut unnecessary monthly expenses wherever you can. So the excess funds go towards debt repayments.