"If you are a few years away from retirement, having a proper understanding of your resources in the future will help you to make the necessary adjustments. If you have already retired, the money you have saved has a finite life span, so it has to be managed with precision," says Deon Nel, head of Standard Bank Financial Consultancy.
"Managing your finances in retirement is critical in today's environment. A hundred years ago individuals would retire at 65 and die a few years later. Now we are living much longer and could easily live to 80 or 90. This presents a challenge of saving enough cash for the next 15-25 years of our lives," Nel says.
"Your financial circumstances will definitely change when you retire; in that you will no longer be earning a salary and will see an increase in expenses such as medical expenses and contributions to a medical aid. This means that living lifestyle will need to be adjusted."
"The sooner you review your retirement plan, the better your chances are to address any shortfalls thereby ensuring that you are able to maintain your lifestyle. Take the time now to sit with a financial advisor to review your retirement goals and whether you are on track to achieving them. If not, then you have the time and the opportunity to make the necessary adjustments now so that you can retire comfortably. Sadly the majority of individuals fall way short of their retirement needs," he explains.
Very few people retire with a higher monthly income than when they were working, so it is important to review your spending habits in line with your post - retirement income.
Nel warns not to wait until retirement to make the adjustments. "By drawing up a budget for your expected income and spending as early as possible, you'll give yourself a much greater sense of control over the steps you need to take to get things on track. Identify areas where you can cut spending and redirect to savings. Also consider having a second career after retirement or continue to work on a part-time basis to supplement your post-retirement income."
"If you haven't retired yet, find ways to add as much money into your existing funds; alternatively you should plan to postpone your retirement for as long as possible and delay the date on which you start taking your pension income. This will increase your income because your savings will have longer to build up and your pension will be payable for a shorter period," he continues.
"If you use a financial planner, he/she will in all likelihood do a revision of your existing pension plan and investments, to ensure that your investments are fully optimised and that you are using your tax concessions efficiently."
A mistake many people make in retirement is to switch to conservative interest bearing investments that do not beat inflation. "You need to make sure that your portfolio continues to out- perform inflation and give you a real rate of return. If there is one time that you need advice, it is when you retire; if you make a mistake, time is not something you can turn to for recovery," Nel concludes.
