10/08/2018
Financial Tips to Live Your Best Retirement Life
JB David B Com, LLB, ILPA
If you're approaching or have recently entered retirement, it's time to enjoy your retirement as much as possible, but it's important to know if your savings will last as long as you do. Here are some financial tips to help make the most of your assets and live the retired life you've always wanted.
1. Understand Your Lifestyle Expenses
Track your spending for a few years prior to retirement to know what it really takes to financially fund your lifestyle. Often your take-home pay minus any savings or investments is a good indicator of what you spend.
2. Be Aware of Financial Costs That Will Change in Retirement
In retirement some costs can decrease, like vehicle expenses since you may no longer be making a daily commute. Other expenses can increase such as travel or medical expenses.
3. Understand How Taxes Impact Your Money
Retirees often scale down their work lives from full-time to part-time to not working at all. Once you start reducing your income, your tax profile will change each year as you scale back. This can create planning opportunities, like lower tax brackets.
4. Create Your Retirement Paycheck
Many retirees have multiple investment accounts such as Fixed Deposits, Living Annuities and other accounts. How you take money from each account to provide your needed income may impact your taxes differently. By planning out which accounts to tap into each year, you can potentially reduce your overall tax cost eg utilise the R34 500 tax exemption for over 65s and if you invest R33000 in a tax free account the return is tax exempt.
5. Understand How Your Investments Support Your Income Needs
Share and bond markets go up and down, which needs to be taken into consideration when you determine how much you will need from your investments to support your lifestyle.
There are numerous studies available that try to identify the amount that can sustainably be taken from a portfolio and have the money last your lifetime. No analysis can predict the future, but a five percent initial withdrawal on a living annuity gives you a high probability that you won’t run out of money, using a reasonably diversified investment strategy.
6. Budget for Unexpected Expenses
Set aside money in savings accounts for a variety of needs, including an emergency fund. How much you should keep in the account is a factor of mainly two variables:
• Risk capacity: How much can you reduce your spending if needed? If you need every cent you are taking from your investments to just pay the bills, you have very low risk capacity and you may need a higher emergency account balance.
• Sleep-at-night factor: How much do you need to keep in cash to be able to comfortably sleep at night when markets are down? This amount varies greatly from person to person, and both spouses' needs should be considered since they may have very different perspectives.
7. Be Aware of How Expenses Change Over Time
As you work through your retirement plan, consider the likelihood that your expenses will change over time. We often segment retirement into go-go, slow-go and go-go phases.
• Go-go usually involves a fairly active stage, where you are still healthy enough to do items on your bucket list you may not have had the time to do when you were working. This can be a more expensive stage.
• Slow-go usually involves staying closer to home, minor health issues and is slightly less expensive than the go-go stage. Some expenses may decrease, such as going from two cars to one.
• No-go happens when health issues require you to either move into a facility that provides some assistance, or you bring assistance into your home. Since these costs tend to increase over the slow-go stage, you may want to consider purchasing long-term care insurance in advance to help with the costs at this stage. f you decide that long-term care insurance is the best way to prepare for your long-term care needs, there are advantages to buying it early. You’ll not only increase your chance of getting approved, but also benefit from a lower rate, in most cases. Keep in mind that pre-existing conditions may also affect your ability to gain coverage, as well as its cost.
The retirement journey is unique to each person. By paying attention and planning for the potential financial issues in retirement, you can make the most of your retired life.
