With people living longer than ever before, the need to start planning for all aspects of retirement from as young as possible, has become even more important.
Evergreen Lifestyle Financial Director Adam Kajee shares his tips for successful retirement planning that you should discuss with your financial adviser.
- Consider your options
There are various factors to consider in terms of where you will live when you retire. First, you must look at purchase models. In South Africa, the two main models found in retirement estates are investing in freehold or sectional title properties or purchasing a Life Right. Look at the affordability of the unit you’re looking to purchase, the levies involved, and whether there are care facilities in place (as well as the costs involved). You also want to look at the lifestyle that your estate offers. Is it safe and secure? Are there frail care options? And what lifestyle amenities and activities are available?
- Location is important
If you’ve lived in a community for many years, you probably won’t want to move too far away when you retire. Your proximity to your support network is a very important factor to consider.
- Think about all financial considerations
You must consider your ongoing living expenses when you retire. Many retirement estate residents worry that they will outlive their assets. Look at the levies you will need to pay and the estimated increases.
- Consider the scale of your retirement option
In smaller retirement estates, the levies tend to be higher. The bigger the estate, the lower your levies will be.
- How are you going to pay for it?
The sad reality is that given the demographics of our country the vast majority of people in South Africa are not saving for their retirement years. Many people are living month-to-month, and not putting any money aside for the future. Of those that do save or have a pension plan, around 7% of gross income goes towards these contributions – which, sadly, might not be enough given the rising cost of living. It’s important to put money aside throughout your working life to ensure you can live comfortably later on. South Africans should ensure that they max out their tax-free savings account of R500 000 over their lifetime as early as possible to ensure they get the full benefit of the tax saving offered by this particular account. At a minimum, you want to be able to cover 75% of your current living expenses in your retirement years.
- Think about long-term value for money
You don’t know how long you’ll be around for after you retire so you want to be certain that you are set up for the long-term. If you’re looking for an investment, a Life Right certainly isn’t it. But from a financial perspective, it offers peace of mind as it is secure for the remainder of your life and your partner’s life. No transfer duty or Vat is payable on purchase. Levies are generally lower than your typical sectional title retirement village as the developer owns the property and is responsible for major structural maintenance, this also means no special levies are applicable. It is essentially a partnership for life. And if you run into financial strain or require additional finances for frail care, there is also the option to tap into the initial capital you put in. With a Life Right, you also gain a long-term commitment from the developer to ensure that the property is well maintained, as it is in their best interest to keep their properties looking good.
- Look at international trends
New Zealand, Australia, the USA and Europe are all heavily Life Rights-based. In many countries, it is essentially the only model. Some countries might have a different name for it, but it all boils down to the same thing: you do not own a physical property, but instead purchase a home for the remainder of your life. It is a clear global trend, and South Africa seems to be heading the same way.
- How much space do you really need?
People typically look to downsize a family home when it becomes a burden to maintain. From a financial perspective, this makes sense. There is also a knock-on effect to owning a larger property: the bigger the house, the higher the costs.
But, whatever age you are, if you have too much space, you should consider downsizing. If you’re not using your space, you’re wasting the space and the money.
- You can still earn money after retirement
South Africa is lacking entrepreneurs, who contribute to the GDP. If you have a skill or hobby that you can turn into a small business, there’s no reason you shouldn’t be earning a second income to add to your retirement fund. Retirees are often highly skilled and experienced and could consider consulting or freelance work for income. You should add to your retirement fund for as long as possible before you start solely eating into it. If you can put money in when you are essentially retired, then your savings will, naturally, stretch much further.
- Teach your children to save
People are usually told to start saving for retirement from the time you receive your first paycheck. But I believe learning to save should start much earlier with parents instilling a culture of saving. Parents can teach their children valuable lessons early by encouraging them to save their pocket money for the things they want, instead of just letting them have what they want and their pocket money to spend on other things.
This article was first published by Destiny Man on the 22 October 2019