Are You About to Retire?
Retirement in a world that changes so rapidly these days means that you find yourself living in a very different world to the one in which you first made your retirement plans. You will live a longer time in retirement than your parents did. That means your capital needs to provide you with an income, perhaps to the age of 90 or so.
The strategy you need to consider is way different to the traditional approach and you need professional advice to clarify what you should do.So your first step should be to contact someone like myself and get advice. Remember that the best laid plans are not made under pressure, like when you are about to retire!
If you're looking for ways to come to terms with a new reality, consider the following:
Reduce your expectations.
More than 60% of those aged 50 or younger picture themselves retiring in luxury. Yet, the financial situation of those who are already retired doesn't live up to the dream - only 20% of retired South Africans are able to live the dream life they want to in retirement.
You may need to set more realistic retirement goals.
Rather than trying to find additional funding, the easiest route may be to trim back on your lifestyle expenditures. By moving to a smaller house, scaling back travel plans and sticking to reasonable budget, you may be able to leave your job a little earlier - a very tempting prospect for those without significant material needs.
Buying a new home.
Chances are, that with the high capital growth recently experienced in property, you have a substantial amount of capital tied up in your home. There are two ways to get to that capital, refinancing (too risky at this stage) and selling. Even after the effects of transfer duty and legal costs, estate agents commissions etc and the purchase of a new, smaller home, you could still have a sizeable amount of capital to assist you generate a life-long income. Seek assistance with myself to investigate ways of releasing this capital.
Increase your income.
Are there ways to increase the size of your income stream in retirement? Although some may immediately think about asset allocation and consider assuming additional risk in the hopes of realising higher investment returns, there are other options. Is passing a holiday property onto the children a priority, or could it be sold? The proceeds of the sale, once invested, could provide the necessary boost to your retirement nest egg.
Keep working.
You might be prepared stay on at your current job until age 65 if that means a more comfortable lifestyle in retirement. But others may still prefer to leave early, choosing instead to work part-time in a different area — perhaps one that pays less but they find more interesting, or involves less stress. Or you could investigate the possibility of working fewer days per week. Hopefully your company needs your hard-earned skills and will accommodate this request. Not only will you earn vital income, but you allow your investments to grow before tapping into them. This will result in a lower capital requirement when you do finally retire
You also can then look at tax-saving strategies that you may have not yet considered. Consider a home-based business? Maybe you and your spouse can start a profitable networking business?
Whatever the case, there's certainly no reason for you to shy away from raising the issue of part-time work as a funding source. In fact, many non-retired people are already considering working in some capacity after they retire and planning to use "earned income"' as their primary or secondary source of retirement income. It's far better to uncover and discuss options today, while there's still time to strategise, than wait until you are about to retire. As I said, our world is constantly changing - your retirement plans should change with it. Identifying what is important to you and determining when and how to go about realising your objectives is essential if you wish to make the best use of your assets and your time.
A Financial Plan.
If you have never had a financial plan, now is the time you really need one! Retiring means you now move from a saver to an investor. You have a finite amount of money to invest so that it gives you the best return versus the lowest risk. Better you plan extremely carefully now, otherwise you may have too much life left after your money is spent. There are many aspects of a financial plan to consider and you will need professional advice. The risk of “going it alone” are too great. Use someone like myself to assist you plan.
A Retirement Budget.
When you retire, your income and expenses change and not always for the better. It is vital you set up a budget as you need to save as much as possible. You need to plan for unexpected expenses like medical costs or tax. You need to plan for your drop in income and the concern that inflation may increase above that of your investment returns. A comprehensive budget will help clarify your situation.
Income Investments.
The traditional method of securing a life-long annuity has great merit. It will ensure that you get a guaranteed, inflation-linked monthly income as long as you live. But that comes with concerns. In today's low interest rate environment, your monthly income rate will be low. In an effort to address this, many retirees opt for Living annuities, which have higher risk than other annuities. Please make sure that you receive both the good and bad aspects of these products. Call me.
Your retirement annuities.
The fact is, that it is better to take the maximum lump sum you can and re-invest it. As you know, tax is levied on the commutation of monies from RA's. But did you know there is a way of reducing that tax liability? If you are able to reduce your income for the two years prior to commuting your RA, you can save considerable tax. To investigate this (and other) options to reduce your tax liability when you are about to retire, please call me.
Your Will.
Make sure that your will is up to date. You need to make sure that your spouse will be protected and that your inheritance planning is both clear and tax-efficient.
There are a number of specific questions you can ask yourself, such as:
Do you have any major concerns as you are about to retire?
Do you anticipate making a major purchase at the time you start your retirement that will require a lump sum of capital or a re payment commitment?
Are you providing, or thinking about providing, some form of inheritance to children or grandchildren while you are still alive?
Have you discussed your estate plans with your children?
It's not uncommon for people to have this idea, "Boy, I'm about to retire. I'm going to have all this spare time." But what are you going to do with it? You need to know what's important to you and what you want to accomplish in the next year, two years and five years. We need to make sure we structure financing to do it and use your resources and assets intelligently to help you do what you want to do while you have the health and ability to do it.
As a professional Life Planner, I am here to help you make this important life transition. Please call me!
If you would like an indication of what you should be saving for retirement, please complete the RETIREMENT SAVINGS REQUEST FORM and mail it to me. I will reply with some values for you. |
pyburn@peterpyburn.co.za
Especially if you are ABOUT TO RETIRE and need a RETIREMENT STRATEGY.
