• Twané Wessels, Product Actuary - Just

Rethink retirement; spend sustainably


In the face of rising living costs and high levels of household debt, the notion of retiring comfortably seems beyond reach for many South Africans. However, retirement income specialist Just maintains that soon-to-be retirees can facilitate a smoother transition towards a sustainable lifestyle in retirement by rethinking their essential spending.


Essential expenses are the cost of physical survival, covering the basic costs of living; accommodation, food and clothing, utilities, medical, transport and insurance. Latest figures from Statistics SA reveal that a household’s essential spending makes up between 65 and 75% of total monthly budget across all socio-economic categories, with only nominal fluctuations between income levels.


The first step is to take an inventory of all your current essential expenses and then account for inflation each year leading up to retirement. The next step is to calculate how much capital you’ll need at retirement to secure a level of income to cover your essential expenses for life (allowing for current tax rates). The table below provides some guidelines: [1]

Source: Just

To ensure retirees are able to fund their basic living costs in retirement, Just encourages over-50s to change their spending habits now and rethink retirement, by identifying saving opportunities by asking the following question: is this spending sustainable?


Here are some tips to get started.


Accommodation


When thinking about retirement, many people dream about spending the lump sum they’re allowed to take from their retirement savings tax free. Given the above figures, it’s clear that funding even a modest retirement income requires substantial savings. Therefore, instead of planning to spend your lump sum, think about re-investing it.


Consider renovations, for example.


Recent research [2] showed that 55% of retirees surveyed spent their lump sum retirement savings from an employer’s pension/provident fund on renovations and home improvements. Is your ‘dream home’ really essential for retirement?

More sustainable options include:

  • Think about major repairs and maintenance that could arise first before considering renovations that are more cosmetic in nature. Do you really need a new kitchen, or is that merely something you want? It’s very tempting to spend part of your lump sum on such nice-to-haves but never forget that you’ll regret it deeply if in 20 years’ time you’ve run out of retirement income. Before you retire, while you’re still earning an income, think about replacing old appliances with good quality new ones that will go the distance throughout your retirement

  • The same applies to big ticket furniture items that might need replacing such as a good quality bed.

  • Downsizing from your current home to a smaller property. You’ll save on insurance, rates and taxes, and utilities this way, while also possibly liberating a further lump sum to add to your retirement savings and thereby increase the possibility of having enough income to live comfortably.

Food, Clothing and Cosmetics


  • Keep a careful note of what you spend on food and groceries and make a concerted effort to bring this figure down by consuming fewer luxury items, buying no-name brands, and shopping for specials.

  • Start investigating affordable, quality clothing brands. As your pace of life is likely to ease in retirement, you should be able to get greater wear out of your clothing.