| For most of us during our working lives the question that is usually top of mind, and most often asked when first embarking on formal retirement savings, is ‘when’ are you going to retire – that ‘event’ date. Retirement today is not what it was for our parents, and not even what it was a decade or two ago. So much has changed – not just regulations and investment environment, but longevity, staying healthier and active for longer, and opportunities to ease into ‘semi-retirement’ also need to be considered.  Today the questions around retirement run the full gamut of Who, What, When, Where, Why, How, Which, Whose. Who. Of course it’s you, but who else is coming along for this journey? Anyone who is a boomer will probably tell you just how rare divorce was when we were at school. I remember very clearly at the (all girls private) school I was at in the 70s, one girl’s parents were going through divorce, and it was the talk of the school. She was the only child from a ‘broken home’ (as it was called then) at the school. That is no longer the case, with divorce rates running close to 36% and many couples choosing not to marry at all anymore. My recommendation to all of my clients is to assume that they will be retiring alone. This is not a diss on the institution of marriage or cohabiting but a way to make sure that whatever happens they will still get the retirement they expect. If they end up having someone to share the expenses, then it is a bonus, but at least their financial independence is assured. Maybe it’s just my client base, but the frequency of divorce at or in retirement seems to be on the increase, and without fail both partners have to significantly downscale their expectations. (An unpopular tip – if you’re considering divorce do it before formal retirement funds vest and get your ‘share’ of those funds put in your name or a lien put on them and continue to invest them. Make sure you get regular statements. This makes sense from a tax perspective too.)  What do you want your retirement to look like? The answer to this question is going to heavily influence how much you need at retirement. You really need to do this before putting the numbers together for your retirement plan. Do you want to travel the world or sit on the stoep and watch the world go by? There is no right or wrong answer. It’s a good idea to think about it well in advance of your launch date (say 10-15 years) so that you have the funds to make it come true. This also gives you time to optimise that unpopular side of the wealth equation known as consumption/spending.  I’m not talking about sucking all the joy out of life (the so-called latte effect) but places where you are overpaying – perhaps medical aid, life and short-term insurance.  When: This is obviously a critical question, because the number of years you have before the event (or semi-event) is a crucial variable in the calculations we advisors do to work out how much you need to be throwing into that retirement pot. Your advisor should be doing some scenarios for you, so you have a realistic plan. If you look at the wealth equation, before retirement you can alter any of the variables, you can increase your income – including by working longer; you can optimise your expenditure – slowly and less painfully; you can expose your wealth to assets that have more long term growth, even if they are riskier (you have time for market cycles to flatten out short term volatility). After retirement some of those variables fall away – specifically when you go on a ‘fixed income’. My RedFile (still free on request) will give you some of the tools to understand your personal wealth equation. Knowledge is power, and if you aren’t already (if you’re reading this then that’s unlikely) keep up to date on money, economics and markets. We have found that knowledgeable clients usually have a far better outcome and there is far less angst from market movements. There are plenty of resources out there (including this one) but we also put out a (free) weekly newsletter and podcast (contact me if you want to receive it). Where: This question has become increasingly important as retirees explore the very real opportunities of migrating from country to country rather than opting for the traditional ‘retirement village’ approach beloved by the previous generation but an anathema to many late Boomers and gen-Xers. There has been a whole industry of ‘retirement villages’ grown out of this perceived need, that, in my experience, look for every opportunity to rip off retirees by praying on their fear of infirmity in their dotage. Fun fact – there are many ways to skin that cat without making those property owners rich and paying extortionate levies that compound well above inflation. Fun fact – access to ‘frail care’ is usually not included and can cost an additional R30-R40k per month.  Why retire at all? This may sound like an odd question to ask, but it’s one that I came to terms with over a decade ago. The mere thought of retiring gave me a knot in my stomach, not helped by watching my father (a construction engineer), with his brilliant mind and boundless energy, try and fill his days with pottering around his workshop, inventing things to do in the house and playing golf 7 days a week. The first decision I made to change that outcome was to find a career path where nobody would tell me when I was going to retire. Mission accomplished. If you’re firmly ensconced in the corporate field, you need to give yourself about a decade to build up your second career – and if you do it properly you can jump before you’re pushed. How? This question takes several forms, but it most applicable to the transition – is it going to be semi-retirement? Perhaps if, as a couple, you have different retirement dates this should be phased in too. It is often a good idea to look at possible additional requirements you might have if you live past perhaps 80/85 when you might have medical needs. This does not necessarily mean frail care, there are many ways to skin that cat (as I alluded to above) but if you’ve thought about it, and made provisions for it, it will be much easier.  Which method should I use to get a retirement income? This applies to the nitty-gritty of how you’re make that ‘income’ side of your wealth equation work for you the rest of your life. You’re going to spend years building up the retirement investments but look down the road to how you’re going to switch them from growing to producing an income. It’s like a carefully nurtured orchard, built up, watered and cared for, for years, and now the time has come to live off the harvest. Done properly – so that the income you need is generated regularly, increasing with inflation and never running out, – then you’re not going to have to stress about things like asset allocation, interest returns in your reclining years and rather focus on important things like the right time to visit Machu Picchu or snorkeling spots in Sulawesi. If ever there was a time to get an advisor to help https://rexsolom.co.za/why-do-i-need-a-financial-advisor/ , it’s at and during retirement. You cannot make mistakes, you simply do not have enough time to fix them or fill the hole you’ve inadvertently put in your investments by doing it all yourself. Whose retirement is it anyway? This brings us back to a previous question: Is this going to be a solo-trip, couple, or other hangers-on too? I know it’s probably impolite and politically incorrect to talk about, but there is a trend that might just haunt your retirement – progeny who refuse to become financially independent and won’t leave the nest. With the gentle parenting norms that have become increasingly popular, you may have invertedly painted yourself into a corner on this one. Conversations around financial independence expectations are best had in your progeny’s early teens (in my opinion) giving them plenty of time to come to terms with the fact that adulting sucks and they may actually have to do work that they don’t love to put food on the table and a roof over their heads when you chuck them out. https://rexsolom.co.za/difficult-financial-conversations/ . I know I’m being flippant and perhaps unnecessarily harsh, but this is a huge problem. Ideally you need to have a good 10 years where you can ‘accumulate’ as much as possible on the wealth side of the equation to pad out your retirement – without debt and dependents. In short, then start thinking about what you actually want retirement to look like (probably from the age of 50.) This gives you time to shape it to your ideal retirement trajectory and get rid of the obstacles that might be preventing that. I speak from experience when I say that 50 is a good age to make some serious career choice changes, preferably one that doesn’t dictate your retirement date and caps your earning potential. It is also a good time to find and nurture a good relationship with a financial advisor who can help along the way. |
| Articles and Blogs: How to survive volatility in your investments NEW What to do when interest rates drop NEW Difficult Financial Conversations Financial Implications of Longevity Kick Start Your Own Retirement Plan You matter more than your kids in retirement To catch a falling knife Income at retirement 2025 Budget Apportioning blame for your financial state Tempering fear and greed New Year’s resolutions over? Try a Wealth Bingo Card instead. Wills and Estate Planning (comprehensive 3 in one post) Pre-retirement – The make-or-break moments Some unconventional thoughts on wealth and risk management Wealth creation is a balancing act over time Wealth traps waiting for unsuspecting entrepreneurs Two Pot pension system demystified Keeping your legacy shining bright Financial well-being when dealing with Dementia and Alzheimers Weathering the storm Pruning your wealth farm Should you change your investments with changing politics? Taking a holistic view of your wealth Why do I need a financial advisor? Costs Fees and Commissions The NHI and what to do about it New-Normal for Retirement? Locking-In Interest rates – The inflation story Situs – The Myths and Reality Tax Residency – New Rules new headaches Are retirement annuities dead A new look at retirement Offshore investing – an unpopular opinion Cobie Legrange and Dawn Ridler, Rexsolom Invest, Licensed FSP 45521. Email: cobie@rexsolom.co.za, dawn@rexsolom.co.za Website: rexsolom.co.za, wealthecology.co.za |