Preparing to take control of your retirement
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By Salie Petersen
LEAVING the safety of your employer marks the end of one chapter of your life and the beginning of another. Consider your options carefully and get help from a financial planner to move as smoothly as possible from one chapter to the next.
If you are worried about having enough money in retirement, you need to follow several steps to take control of your situation:
Understand your situation
It’s important to know where you spend your money and what resources you have. Make a list of your expenses and debt repayments, and another list of your household income and any savings you have.
Ask what you can change
Review your expenses in detail to find out which expenses you can reduce, delay or stop.
Think about your future needs
Work out how much money you will need to live on. Also spend some time thinking about how your expenses may change in the future and which expenses, such as healthcare costs, may increase.
Once you understand your financial position, you can start planning for when and how you will reduce, delay or stop any non-essential expenses. Also, consider what else you can do to stretch your money as far as possible and for as long as possible. Making some changes, such as moving to a cheaper home or looking for ways to earn extra income, could give you a better chance of having enough money to live on. A financial adviser can assist you with this step.
Start new habits
Regardless of your financial situation, you should use this time of change to start new habits. Now that you have a budget and a plan, stay on top of your finances by:
- Recording your expenses;
- Comparing your expenses to your budget every time you spend money;
- Checking your plan every month; and
- Adjusting your plan if necessary.
By forming good habits, you’ll be using this opportunity to put yourself in a better position to achieve what matters most to you.
If you don’t need an income straight away, you can delay or defer getting your pension. If you do need income immediately, your options are a guaranteed pension for life, a flexible pension (living annuity), or a combination of both.
You can use your retirement savings to buy a pension from a pension provider. Retirement savings come from pension funds, provident funds, preservation funds or retirement annuity funds. The pension provider you choose pays you a pension every month, every three months, or once or twice a year, depending on the agreement with your pension provider.
Make sure you have enough money to live on in retirement
When you decide to withdraw any of your retirement savings in cash, the most important consideration is making sure you have enough to live on. An adviser can help you to decide how much cash is right for you according to your circumstances.
Giving yourself the best chance of a good retirement
It is important to be aware of the problems people have in retirement so that you can manage them. For example, there is a risk that your retirement savings might run out, that your loved ones are not taken care of after you die, or that your expenses increase faster than your pension. To give yourself the best chance of a good retirement, make sure you understand your options, get help from a professional financial adviser to choose the best pension option for your needs, and spend less than you earn each month.
Remember to build your retirement picture, have a plan for living in the picture you imagine, and update your plan regularly as things change.
Salie Petersen is a Certified Financial Planner at Alexander Forbes.