Can we agree that 2019 was not an easy year for anyone? As we head into the new year, with the possibility of continued load-shedding looming over our work and home lives, it is wise to remember that effective planning for electricity outages is like planning for retirement: we have to accept that difficult times will come, but should always try to find ways to overcome these challenges.
When you have a proper plan in place for retirement, this unavoidably shifts some of your potential enjoyment from now to later. This is the part that most people find challenging – delayed gratification. But if you think about it in a different light, save for your retirement today to improve tomorrow (much like paying for a generator now, to cope with future load-shedding), the idea becomes less of a burden.
This year consider an investment in your future as a gift to your future self. One day you will look back on your decision to put away some money, and thank your old self for the foresight to save. It is easy to forget that life continues beyond employment. Your ‘golden years’ should not be spent without enjoyment or satisfaction for having toiled at your job for so long.
You could view the situation from another angle: imagine yourself a few decades from now, looking back on the decisions you made. Which decisions would you thank yourself for making?
Here are ten tips to follow, which will help you enjoy your retirement:
- Take stock of where you are. Determine your real financial position, write down all your assets and liabilities. This will give you a much better picture of your starting position, in your quest for a blissful retirement. Analyse your excess income and how much you could reasonably put into a savings vehicle each year, while still retaining enough disposable income to enjoy entertainment time with your family.
- Decide where you can cut and stick to it. These can be tough decisions, but sometimes eliminating even small treats here and there can add up to significant savings over the span of a year. It is possible to form good habits and the rewards of watching your savings grow, will most likely outweigh the loss of frivolous spending. You might decide you need additional sources of income. You can start a new business or turn your hobby into a paying enterprise. Diversifying your income is what most people are doing these days, so think not only where you can cut expenses, but where you can add revenue.
- Make a plan to pay off your debt. Pay off the debt with the highest interest rates first and avoid taking on any additional debt if you don’t need to. Debt is probably the single biggest destroyer of future wealth and should be used wisely. Good debt helps you buy assets you can’t afford and pay them off over time, like a house. Bad debt takes away from your income each month and, over time, makes you pay more for an item than its cash price would have been.
- Create goals. Everyone has an idea of what their retirement should look like, but it is important to sit down and think about specific goals. How much would you like to earn when you retire, compared to your current salary? Do you have plans to travel or do you want to retire at the coast? What will you keep yourself busy with, and how much will that cost you monthly? Without goals, it is difficult to assess what your living expenses and required income will need to be. Goals can be updated over time, but having major goals in mind gives you something to work towards.
- Do some research on the best places to invest your money. Short of going to a casino and taking a massive risk with your hard-earned money, there are no shortcuts to saving. The old adage that any promised investment return which seems too good to be true probably is, has been proven countless times. Start by talking to your financial advisor: what kind of returns can you expect from investments in various asset classes; how long is your investment horizon (that is, how many years do you have left to save before you plan to retire); how much is inflation expected to be and finally, how much do you need to save to have the kind of retirement you want. Once you know the values of these variables, you will have a clearer picture of how much you need to set aside each month.
- Start saving. You can be savvy about this by using savings vehicles that offer tax benefits, like retirement annuities or tax-free savings accounts. Eliminating or reducing taxes on payments towards savings will help to grow your nest egg, so make sure you know which products to use (from Tip 5) and then start saving. You don’t have to set up a monthly debit order, but it helps to ensure discipline. Once you get used to saving and investing, it’s easy to forget you’re even doing it. If you have finished paying off your car, don’t give in to the temptation to spend that money on things you don’t need – rather funnel it towards your retirement savings until you need to buy a new car. You’d be surprised how little your life will change, but you will be improving your tomorrow, instead of paying off a depreciating asset. Make smart decisions about any lump sums or bonuses you receive. These can be highly effective in adding to your retirement capital and benefiting from the effect of compounding.
- Get a regular wealth check-up. Things change, but you need to adapt to stay on course for your retirement savings. It’s a good idea to consult with an expert – your financial advisor – whenever your life circumstances, income or monthly costs change. Check in with your advisor at least once a year to make sure you’re still on track, or to modify your savings routine if you’re not.
- Insure yourself (Wealth protection). Disaster can strike at any time. If you’ve been saving diligently for years and something happens to you, the last thing you would want is for your spouse and family to spend all your accumulated wealth on expenses, dealing with your illness or death. Having death and disability cover in place means those expenses will be covered and your loved ones will not be unnecessarily burdened by something terrible happening to you.
- Keep worry at bay. If you have your retirement planning under control, you will be confident in the knowledge that you are doing everything within your power to plan for tomorrow. You will worry less, sleep better at night and not have any nasty surprises when you get older. Many people are simply too afraid to grab the bull by the horns and plan properly, and by the time they retire, they are shocked by how ill-prepared they are. The bottom line is: peace of mind is priceless.
Money does not define you. This could be the most difficult advice of all to internalise, but in truth, you are running your own race, you have your own personal retirement goals and need to plan accordingly. Make an appointment with a financial adviser, draw up your investment plan and then persevere. Listening to too much advice or other peoples’ goals, will only confuse your situation, they will have different priorities and circumstances than your own. Ultimately, you need to ensure that future YOU will be content and provided for, not anyone else.