Henrietta the tea lady started saving R125 a month for her retirement at her first job. She had no idea that she’d be able to build her own home in Hammanskraal, buy a new Toyota Yaris and live a comfortable life when she finally retired.
Unfortunately, this isn’t true for many retirees. In some cases, it’s been a matter of not starting early enough and life bringing about unexpected financial challenges. The problem is that once you reach a certain age, the opportunity to invest for the future has passed, and it is now a matter of managing on what you have. This requires facing the challenge head on and understanding exactly what your financial situation is and what you can do about it.
Cash-flow projection
Get good financial advice to understand exactly how much money you have and how long it will last, given your current lifestyle. If you are able to understand the short-fall, you will have some idea of what measures you need to take.
Fixed income: If you receive a fixed income from a life annuity or pension, understand whether the income adjusts for inflation and, if so, by how much. Even an inflation-adjusted income may not keep up with the real inflation of a pensioner given the increases in prices of electricity, rates, and food. In five years’ time, will your income still be sufficient to meet your expenses?
Variable income: If you receive an income from an investment, such as a living annuity, how much are you drawing down and is your draw-down rate realistic? The rule of thumb is that you should not be drawing down more than 6% of your capital per annum, otherwise you will not have sufficient growth on the capital to keep your income in line with inflation and will eventually start eating into the capital. You need to take variables into account, such as your current age and longevity.
Adjust your expenses
If you find that there is a good chance you will run out of money in the foreseeable future, you need to adjust your expenses now rather than later. The less income you draw today, the higher your future income will be, especially in the case of investments where the capital can be left to grow. For many retirees, families remain a serious financial commitment, but it may be time to have some tough conversations around the extent to which you can provide financial assistance. Your long-term priority is to remain financially independent.
Increase your income
Any additional money you can make to supplement your income will help your retirement funds last longer. Considering that many retirees can expect to live past the age of 80, there is no reason to write yourself out of the job market. In the US, the highest number of new jobs has been for people over the age of 55. These are retirees who either need the extra income or just want work stimulation. As you are only looking to supplement your income and not become the next CEO, you can find work that meets your passion and pays the bills.
You could commercialise your hobby or find income-generating work, such as house-sitting, tutoring or even becoming a mystery shopper. Airbnb has created a whole new way of making money from your home. You can rent out your home while you move in with the kids for a few weeks – especially if you retired to the coast where December demand sees high prices paid for accommodation.
The bottom line is that few retirees have enough money not to pay serious attention to their financial status. The sooner you have a full grasp of your financial requirements, the sooner you can take the necessary steps to secure your financial future.
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