Are you spending R26 a day (about R9 400 a year) on cappuccinos? If your answer is "probably yes", have you ever considered how far that money could contribute to "the Big R"– your retirement savings?
Synonymous with 65, retirement, for many, seems like a distant "destination" with little immediate relevance. For others, it's a line they've already crossed, but still feel ill-prepared for. In truth: instead of experiencing retirement as an incremental journey for every life stage, it becomes a big, problematic word with which no-one really connects. This is why financial planners are starting to advocate a goal-setting approach, which involves frank conversations with yourself at every age.
It requires drilling down into the detail. It means knowing what you love and feel passionate about.
Ryno Oosthuizen, Business Development Manager at Glacier by Sanlam, says, "People respond to ideas and passions. Not numbers. Whether you're 20 or 40, it's never too early to set goals for what you want your life to look like – in the short- and long-term. Setting goals drives the behaviour that'll get you there."
Here, Oosthuizen and Andre Wentzel, Segment Solutions Manager: Sanlam Savings at Sanlam Personal Finance, share the savings conversations that they would have with themselves at every age and life stage:
Advice from your 30-year-old self to 20-year-old you:
"You could have saved more and spent less."
In your 20s, it's tempting to pursue instant gratification through a social-media-worthy lifestyle.
You're also inclined to think you need to be older and in a different life phase to start saving for retirement.
- Start saving, especially if you're one of the 38% of millennials with no formal retirement plan or tax-free savings. You'll thank yourself in an emergency or when you need to put down a deposit, for example.
- Start saving early and invest aggressively. Even saving small amounts like R150 a month can earn you worthwhile compound interest. There's a HUGE difference between having 45 years vs 20 years to save.
- As you start to earn more, don't let your expenses ratchet up. Rather skim off a bigger portion every month for your RA and tax-free savings.
Advice from your 40-year-old self to 30-year-old you:
"Don't spend too much on things; rather invest in the kind of lifestyle you want to achieve and sustain."
In your 30s, many things require funding - from property and vehicles to overseas trips and babies.
Expenditure can quickly run awry. So tap into a more frugal mindset and set a solid foundation, with short-, medium- and long-term goals clearly plotted out.
Make sure you draw up a plan with the help of a financial adviser; and refer to that plan regularly while spending some time researching and understanding your options to make smart decisions.
- Preserve: If you're considering changing jobs, don't cash out your retirement savings. Rather preserve them in a suitable vehicle, like a preservation fund.
- Be smart about bonuses and promotions. Use the extra money to kick-start an emergency fund, pay off debts or boost your retirement savings.
- Don't be afraid of risk: In your 30s, you should have time to recover from short-term fluctuations if you invest in a high risk investment portfolio. High risk, high returns… Also, try not to chop and change between investment portfolios - a well thought out investment strategy and financial plan should weather any market volatility.
Advice from your 50-year-old self to 40-year-old you:
"Now's the time to make compromises, cut back, save more and optimise."
If you haven’t started saving for retirement, you're going to have to make some drastic compromises according to advice from a financial planner. Pick the right type of risk profile investment vehicle to prepare for what you plan to do once you retire. If you were a bit frivolous in your 30s, you might need to be "thriftier" in your 40s, with a disciplined approach that makes "Plan A" - whatever it maybe - feasible. Check in with your planner regularly to ensure you're on track.
- In your 40s, you’re often "sandwiched" between saving for your kids and their education and supporting your parents. Take stock of your finances and make sure you have other avenues aside from your retirement savings to draw from, now and in the future.
- Maximise what you earn: Now's the time to negotiate a promotion and raise. Invest the extra funds in a tax efficient savings vehicle such as Glacier's Retirement Annuity or Tax-Free Investment Plan or alternatively, an endowment if you have made use of all your other tax concessions. Also, consider monetising your passion by starting a side hustle you can continue into retirement.
- Health is wealth. Taking your family history into account, are you saving sufficiently for your prospective medical expenses now and post-retirement? Invest in your physical and mental well-being.
Advice from your 65-year-old self to 50-year-old you:
"Make sure you put away enough now so you can retire when you want to and ensure your standard of living is maintained."
A common challenge for many people is that they wait until the day before or after they retire to think of how they're going to fill their time. Start thinking about what you want your retirement -ideally and realistically - to look like, and do the sums so you know what you need to achieve this.
Don't leave this process too late. Remember to drill into the detail of the goals you set. And consider the options of semi-retirement and setting up a small business on the side.
- From a pre-retirement perspective, now's the time to look at what you have under a microscope - things like your investment and estate planning.
- A common issue at retirement is to try and solve the pre-retirement issue of not splitting your assets appropriately between formal retirement savings and discretionary savings. For example, if you want to travel a lot in retirement, you’ll need to frequently draw ad-hoc capital, which means having sufficient discretionary savings available. That's where an investment-linked living annuity could be your match. Again, it comes back to the goals you set. Start thinking about this now - preferably even earlier. Combining different income solutions may be the better option for your circumstances.
- Keep looking after your health - financially, physically and psychologically.
Advice from your 80-year-old self to 65-year-old you:
"Have you saved enough? See, I told you to look after your health!"
You'll need to carefully manage your money to ensure you have sufficient income for the rest of your life. You'll be faced with lots of choices: like the level of income you need to draw; whether your annuity is investment or inflation linked; if you should take a third of your retirement savings incash; whether to downsize and keep making discretionary purchases like holidays... there is a lot to consider. This is where a financial planner plays a critical role.
- Follow the "draw 4%" rule and you should be fine. In a tough market of limited returns of 3-9%, drawing an income of 9-10% means you're depleting your capital.
- It's about knowing what you want: money in the bank or a great lifestyle? Keep working towards your priorities with your financial planner.
- Many people want to leave a legacy but are still supporting dependents and drawing on their retirement savings to do so. There are other ways to leave a legacy - like life insurance.
In every life stage, working alongside a trusted financial planner remains the best way to set goals and to stay on track in achieving them.
* For more information, visit Conversations with Yourself. Alternatively, click here for more information on pre-retirement planning, and here for more on post-retirement.