Over the last two months, the world has undeniably changed. Markets have contracted, our financial resources have been depleted, and uncertainty is at historic highs. How we think about ourselves and others, what and how we buy, how we move (or don’t move), how we work, and how we communicate have all changed significantly. Most of us might only experience a wide-ranging adjustment like this again when we retire.
As we know, the retirement outcomes for most South Africans were not looking good, even prior to Covid-19. The reasons for this include lower investment returns recently, but is also directly related to elevated modern lifestyles, increasing longevity, low preservation of savings levels, and raising tax trends.
When you add in the economic impact of the Covid-19, things only look worse. However this crisis also provides the ideal opportunity to interrogate our lifestyle choices and make decisions now that will set us up for a healthier financial future. Here are seven suggestions to get you started:
Look for ways to extend your 'economically active' chapter
This will require very specific and accurate career planning. In the “new” world it is already clear that certain careers and industries (tourism, hospitality/food, logistics, advertising, retail, property utility) will undergo a substantial makeover. Individuals who focus on reinventing their skillset have a greater chance of staying relevant and employable.
Reconsider the starting point and format of your retirement
The biggest two considerations that determine a successful retirement are the duration and level of financial dependency on your accumulated retirement funds. To fully retire at 60 or 65 is in steep contrast to new findings that suggest your most productive years could be after age 60. Aspire to deal with many bucket list items during your economically active phase (within your financial means).
Reduce the chances for financial mistakes
This can be achieved through obtaining prudent, independent and dependable financial advice. Avoid jumping around chasing different investment ideas with unsustainable return expectations. Rather, aim for above-average investment returns at appropriate levels of risk. Investors should evaluate their performance in terms of their level of investment contributions, instead of pushing for unrealistic levels of return from financial markets (which often translates into financial mistakes).
Maintain a healthy lifestyle
Good health is one of your biggest assets, and conversely any health risks pose a significant threat to your ability to earn an income up to the point of financial independence. Increasing fragility is part of ageing, but chronic illness (caused by poor lifestyle choices), will inevitably complicate your retirement options and finances.
Attack individual silos of debt
Rank your debt in order of the highest interest rate to the lowest and start paying these off accordingly (e.g. credit card/retail accounts have the highest interest rates whereas your mortgage will generally have a lower rate). Globally, interest rates are at record lows, and SA’s recent interest rate cuts mean now is an ideal time to kick your debt busting plan into action.
Tax optimisation is increasingly important
Governments are taking on unprecedented levels of debt to stimulate economies and provide financial relief to those in need in this time of crisis. This debt will need to be repaid in time, and will place an additional burden on taxpayers. Tax efficiency and optimisation will become ever more important in the years ahead. Don’t underestimate the impact of large, once-off tax penalties on the future growth of your savings.
Step up and adapt
Covid-19 is challenging individuals and industries to adapt. Diligent, disciplined and continuous financial planning can help you get into better shape for when you decide to retire one day. Use the learnings from this lockdown experience to set yourself up for a healthier financial future; one where you will have the freedom to do the things that really matter to you in your retirement.
Richus Nel is a financial adviser at PSG Wealth.