• Bruce Cameron

About to retire? Take great care

One of the worst things about retirement is that most funds force you to take retirement at a certain age, normally between 60 and 65.

You are about to retire. Unfortunately, the money you have carefully built up suddenly seems to be a lot less after being hit by the Covid-19 pandemic, the Zuma regime and the value of the rand.

And if you fit into one of the categories below, your financial situation could be even worse:

  • You still haven’t saved much and are well short of capital, as is the position for most members of retirement funds.

  • You are being retired early, as your employer wants to hire younger, less costly workers.

  • Your job has been made obsolete as a result of the crises we are still navigating, and your position is looking far worse.

  • Your underlying investments were very underweight in terms of foreign investments.

  • You are being forced to take early retirement at age 55, have not saved very much in the past, and your investments have not been great. This is a worst-case scenario.

Plan ahead

The first thing you must do is speak to your retirement fund’s counsellor. This will not cost anything. And then follow up with a financial adviser.

One of the worst things about retirement is that most funds force you to take retirement at a certain age, normally between 60 and 65. This means you could work for 30 years, which is equivalent to setting an initial drawdown from retirement assets of 4% a year.

Most people are quite capable at 65 to continue working – and they should if they can. By adding five years to your working life, you can improve your retirement savings by about 20-30% and reduce the time you will spend living off your savings. So, instead of 30 years of working, the ratio becomes 35 years of working and 25 years of living off the income of your savings. This small change could make a big difference.

The practice by funds of fixing retirement date dates to a predetermined age is something that should be dropped. But that is another battle.

To gain a fairly accurate view of your income flow in retirement, you can use what is called the Rule of 300 with a 4% return.

The Rule of 300 takes the amount you spend every month and multiplies it by 300.

So, if you are spending R20,000 a month, you will need R6-million saved to retire on the same income. If you invested the R6-million, the amount should keep your income level aligned with annual inflation to last for at least 25 years.

One of the few pleasant things about inflation is that money invested should keep you in line with inflation. The reason for this is that companies sell goods and services at prices that link with and often beat inflation, which then reflects in their share price.

The Rule of 300 will give you a good idea of your financial situation:

  • Whether you can afford to retire: If you can’t, then you must consider other options. For example, continue working at your existing job, if you can, or try to find another one, or create your own. Avoid using the third choice of using your retirement money on a business in case the n