In your twenties you barely make enough money to buy yourself lunch. In your thirties your priorities change to buying a home, paying school fees and keeping your car maintained. In your forties the majority of the commitments you have in your thirties may still be there and by the time you are fifty or sixty you may find yourself wanting to celebrate your new found freedom by spending your hard earned money on a holiday or dream car.
But by the time you reach fifty or sixty you realise that you have more years of saving behind you than in front of you. Looking back you know you shouldn’t have cashed in your pension twice when you changed jobs. But the money was available and you needed it to pay off some debt and pay for school fees.
This is the reality that a lot of people find themselves in. They find that they haven’t saved enough for retirement, and that there are only a few years left in which to do so. Wilfred Moyo, investment and economic strategist at Metropolitan Retail says that if you find yourself in this type of situation that the key thing is not to panic.
“You need to remain calm to make informed decisions. Plan your retirement by deciding how much money you would like when you reach retirement age. Consider the shortfall between your ideal retirement amount and the amount that you managed to save for retirement. You also need to consider the time period that you have until you reach retirement age,” he says.
Delay your retirement
If you find yourself close to retirement with not much savings to go on, there are still a number of things that you can do especially if you are still in good health. One option is to continue to work.
“Delay your retirement. There is a massive skills shortage in South Africa and I am sure most people would be able to find some work on a part time basis. Be creative. There are plenty of kids that need sports coaching or maths lessons,” points out Matthew Hunter, head of savings and investments at Absa.
Moyo concurs, adding: “Develop a strategic plan to continue receiving an income to reach your goal. For example, work beyond normal retirement age, or open up your own business. Another option is to downsize where possible to minimise living expenses and to free up some money.”
Make some financial sacrifices
There are a number of ways you can reduce your expenditure when you reach retirement in order to save more money. “You can downgrade your house and car and cut down on entertainment costs. You may even need to downgrade your medical scheme, insurances and cut down on your banking fees. You can renegotiate your banking fees and reduce costs by transacting more online,” advises Hunter.
Selling assets, such as the extra furniture you have in your lounge, is another way to free up some cash. Shopping smartly can also help you save. “We generally spend more than we earn. Rather buy in bulk and share with friends,” advises Hunter.
Taking on risk is risky
Investing in assets that may produce a higher return to make up the shortfall is not always the wisest idea. “If you are close to retirement, ensure that your retirement savings do not have a high exposure to high risk assets, such as equities. Higher risk assets are more unstable over the short term so you would need a longer time period to achieve your retirement goals. Sit down with a registered financial adviser to discuss your retirement plan and he/she will help you implement it,” advises Moyo.
Hunter says that a safer option is not to touch your pension pot but rather take on risk with separate savings. “Rather put money aside to invest in the stock market. Things can turn so quickly. Remember too, that you can enhance your yield by changing investment terms and extending your investment commitment.”
Relying on the government
As a last resort you could always apply for a state pension. This is known as the ‘Older Person’s Grant’ and you qualify for this if you are a South African citizen, earn less than R5,150 a month and have assets that are valued at below R890,000. So if, for example, you own a house that is worth over R1 million you don’t qualify for this grant.
If you meet the criteria it may still not be enough to tide you over. “The grant pays you R1, 350 a month and if you are over the age of 75 you get an extra R20 and get R1, 370. It should only be relied upon as the ultimate back up,” says Hunter.
Managing retirement money
It’s understandable that you want to spoil yourself in your golden years but if you haven’t retired with the right amount of money then commentators advise prudence. “Only access funds in order to meet your lifestyle needs. Keep in mind that your money should last throughout your retirement years. Avoid debt during retirement as the interest on repayments will reduce your savings,” says Moyo.
Save money while you still can
Regardless of whether you have 50, 20 or ten years to save it’s important to do so to ensure that you have money in retirement. “While you are still working, set a retirement goal of how much money you would like to have when you retire. Develop a plan to reach your goal with the help of a registered financial adviser. Remember that you are responsible for the success or failure of your retirement plan. The financial adviser’s role is to guide you and give you information to help you make an informed decision.
For example, try to get a better understanding of the underlying investment portfolios of your retirement fund and how this affects your retirement savings. You have the right to ask for all the information regarding the retirement fund, such as the main aims of the investment portfolio where your money is invested. Try to educate yourself on economic issues. Understand the impact of regulatory changes on your pension such as retirement reform, tax issues, etc.,” explains Moyo.
Hunter adds that even if you have only ten years left to save before retirement, you can make it work. “If you have ten years left to go you can make a recovery. It’s never too late to plan for your retirement but the earlier you do so, the better.”