I have been a financial planner for the past 15 years and have helped many clients to plan their retirement. I have also walked the road with them during their retirement. In the planning phase certain assumptions are made regarding expenses during retirement. The assumptions play a decisive role in calculating the capital required at the start of retirement to ensure that it can be funded until a ripe old age.
There are, however, a number of eventualities which can derail your retirement plan and which will thus require that you must make adjustments.
1. Medical expenses
Membership of a medical aid will generally cover serious illness to a certain extent. Your coverage can further be strengthened by taking out so-called “GAP Cover”, and you can also take out insurance against dread diseases.
However, medical aids are becoming increasingly unwilling to cover procedures which are not life threatening. Thus, for example, funding of dental procedures is very limited and one thing we know, for sure, is that our teeth will need some work, especially due to all the gritting of teeth we have done in this country. Similarly, eye care procedures are also mostly for your own account. The pressure on medical aids is resulting in the coverage of mainly life threatening events, and any procedures which do not fit this requirement are not paid in full.
General procedures recommended by specialists, like hip, knee and elbow replacements, are not necessarily fully covered by medical aid. It is advantageous to have funds available for such eventualities.
2. Children who come back home
The environment in which younger people find themselves today is much more dynamic than a few years ago, and to have permanent work is no longer a given. Employers change ownership and the first thing they do is rationalise staff. In some cases, this means that children return to their parents’ home until their finances allow them to be independent again.
They don’t necessarily have to move back to the home of their parents, but they are assisted on a monthly basis with items like food, clothing and school fees for grandchildren. Before you know it, your monthly budget is being exceeded on a regular basis, and this becomes the norm. If you do not make adjustments, it can have a significant impact on the lifetime of your retirement capital.
3. Family members who lack sufficient capital to fund their retirement
Sometimes you only realise at a relatively late stage that a member of your family has not saved enough and cannot afford to retire and that you may be called on to help other members of your family financially. We have seen this in particular amongst divorced individuals, and unfortunately traditionally at this stage mostly women, who are unable to survive independently, financially after retirement. At this stage you need to decide whether you are going to be able to make adjustments to your lifestyle to be able to help them.
4. Your parents
When your parents outlive their capital, the pressure on the children to help increases. Although there can be a variety of causes for the lack of funding, you are placed before a choice whether to help, or to ignore the situation. As many people have already found, it is the one with the most assets to whom the appeal for help is made.
5. Maintenance of your home
It is not necessarily the rule, but in many cases the house in which a retiree lives is already old and the bond has already been paid off. Regular maintenance of the house is essential, but then there comes a time when more extensive work is required, such as replacement of the roof, which can be a big expenditure. Although your home does not form part of the capital available to fund your retirement, you can get to a stage where you want to scale down and move to a retirement home, but due to the condition of your house, it can mean that you cannot afford to move.
How do you protect yourself against events that can derail your retirement plan? It is important that, at retirement, you have a good understanding of the assumptions made regarding your retirement. If any unforeseen expenses occur, you must decide whether it is only temporary or whether this will be a long-term expense. The most important thing is to make adjustments timeously, so that the unforeseen expenses do not derail your own plans.
Unfortunately “adjustments” mean that somewhere you must make cutbacks. Another option is to ensure that you have surplus capital at retirement, so that you can use it for unforeseen expenses and, if the surplus survives you, you can leave it to your loved ones.
This brings me to an important point: don’t retire too soon! In my opinion the ideal is to scale down, if your profession allows it. Scale down means that you earn less income and thus have less work pressure, but you are not totally dependent on your retirement capital. If you have a part-time or freelance job, it is advantageous to keep it.
It is important to keep all these factors and possibilities in mind when planning your retirement, so that you can retire with peace of mind.