Rands and Sense - Personal Finance

Things to consider when planning to retire

If you do not have a good grasp of what your income and expenditure needs will be, you run the risk of depleting your capital during your retirement years.

The first step in the process is to determine what your level of income will be once you retire.   A rule of thumb is that retirees can usually survive on a post-retirement income of between 70% and 80% of their pre-retirement income.  This is subject to a number of factors and should merely be used as a guide.

You then need to understand what your expenses are likely to be when you are no longer working.  Certain expenses may reduce or fall away, while others might increase.  You will need to budget for the usual monthly living expenses such as groceries, rates and taxes, security, communication and transport costs as well as some potentially new expenses.

Hopefully, by the time you retire your children would have been educated and you would have managed to settle all major outstanding debts such as home-loans.  At this stage of your life, you may not need to spend as much on life and disability insurance as you would have when your children were young and when you had debt to service.  On the other hand, when you retire from formal employment, you will more than likely lose your employer-sponsored medical aid subsidy, which will inevitably result in your having to pay a higher medical aid premium. Medical expenditure often increases as one grows older, so it would be prudent to factor in higher medical costs when determining your future expenditure requirements.  Frail care, assisted living and private nursing can be extremely expensive and you should plan for such care, in case it should be necessary.

You should anticipate and budget for the occasional large capital outlay such as overseas travel, costly medical appliances, the purchase of new motor vehicles and even for providing family members with financial support, if you are in a position to do so. 

Although it is important to understand your retirement income and cash-flow needs as you approach retirement, the younger you are when you start to plan the better.  The longer you delay the financial planning process, the greater the percentage of your disposable income you may need to invest in order to secure your financial future.   

Currently, only around 6% of South Africans are able to maintain their standard of living when they reach retirement age.  The rest will either have to dramatically downscale their standard of living or may even have to rely on family or the State for support. An experienced Certified Financial Planner® will be able to assist you to determine whether or not you are on track and if not, what changes you need to make to order to achieve your financial goals.