Decisions to make when you retire
A successful retirement means that you can maintain your standard of living, without financial assistance from others, and there are critical decisions you need to make as you approach retirement.
You have to make informed decisions around your options at retirement and it is crucial to consult a financial adviser about these decisions, including budgeting, choosing the right annuity, estate planning, tax planning, and how you approach retirement in general.
A budget becomes even more important in retirement. With a realistic budget, you can see if you are living within your financial means and where you are spending your money every month. And with a budget for retirement, you can plan better for life after retirement.
Consider the changes in your lifestyle after retiring, including: will you travel more, need a new car or move to a smaller house? Are your debts paid off, or when will it be paid off? And will your medical aid plan change?
Choosing the right annuity
When they retire, most members use their retirement savings to buy an annuity. Annuity income (or pension) is a regular income you receive during your retirement years.
There are different types of annuities, and when you purchase an annuity to provide an income after retirement, you need to carefully consider how to apply your retirement savings so that you and your loved ones have a sufficient income when you no longer receive a salary.
When deciding on the type of annuity, you have to consider how much flexibility and income certainty you need. Your risk appetite, health and other sources of income are also important factors to consider.
Broadly speaking, there are two categories of annuities, each with their own key features:
A living annuity offers you flexibility to decide how you want to invest your retirement savings and how much income you receive, within certain limits. Your income will stop once the capital is depleted. If you die while there is still a portion of your capital left, it will be paid to your nominated beneficiaries.
A life annuity guarantees you an income for the rest of your life, and you don’t make any investment decisions. Your income will be paid for as long as you live. If you selected a guarantee period and die within that period, that part of the annuity that would have been paid until the end of the guarantee period will be paid to your nominated beneficiaries.
Estate planning, tax, medical, insurance
There are various aspects to consider in a holistic financial plan that can give you peace of mind in retirement. Estate planning and tax planning are two of the more complex issues, and your financial adviser should take these factors into account in your financial plan.
It is also important to reassess your choice of cover for medical expenses. As you grow older you may require more chronic medication and more provision for other medical expenses. And make sure you review your risk policies and life insurance to make sure that you have the right cover in place for your circumstances.
People always think of retirement in terms of ‘have I saved enough? or do I have enough money for retirement?’, but there is another aspect that we should also think about, and that is your mindset.
Firstly, your mindset about your money and investments should be in the right place.
Don’t feel that you need to be too conservative and take all your money and stash it under your bed. Also, don’t chase unrealistic returns and be ‘too aggressive’. A financial adviser can help you determine the most suitable investment strategy for your retirement needs and help you to stick to that strategy.
Secondly, you also need to plan for how you are going to use your time and what you’re going to do with the rest of your life. In retirement, you’re suddenly going to have a lot more time on your hands. It’s often hard for people to plan for what they’re going to do with all that time. So, it could be important to reprioritise what success means to you, and what you’re going to do with your time.
Lastly, age is a mindset – you are only as old as you feel. And when you have the best financial plan in place, you can enjoy your life after retirement.
The value of financial advice
We recommend that you get in touch with your financial adviser to plan for your retirement together. South African retirement funds must also give their members access to retirement benefit counselling when they are close to retirement and at retirement.
If you don’t have a financial adviser and would like to speak to one, click on the ‘Find an adviser’ button below
Or speak to our benefit counsellors on 0860 546 533 or email [email protected].