The difficulty with retirement planning is that there’s no one-size-fits-all solution that you can buy and store until you hit retirement. Each individual’s retirement story is as unique as their relationship with money, the decisions they’ve made, and past and present circumstances.
That’s why it’s so important that we talk about money. By sharing our insights, we can help others broaden their views, gain insights of their own and apply that information to shape their own retirement narrative.
From the horse’s mouth
In the first of this three-part series, we’ll be sharing conversations we’ve had with retirees on their financial journey thus far. We talk about the mistakes they’ve made, how they’ve invested their retirement savings, and the nuggets of wisdom they’ve gained through this process.
Our first interviewee goes by the name of Re-tired (not his real name, of course). He checked out of his 9 – 5 at the age of 55, after having worked as a manager for a large corporate. For the first 30 years of his working life, Re-tired made compulsory contributions to his company’s retirement fund. He also took out some personal retirement annuities to make use of the added tax benefits these RA’s provided. Later and closer to retirement, he added some stocks and shares via a broker.
Investment decisions upon retirement
“No one prepares you for the “hundreds” of options you are met with when you retire – it’s complicated!” In short, his experience was of legacy financial service providers wanting to charge a fortune in annual fees after presenting countless options – which makes it a minefield to navigate. So what did he do?
“On retirement I withdrew as much as I could of the one-third lump sum that can be taken in cash, before tax became an issue. This I invested in discretionary stocks. I then bought a living annuity with 10x – they offer very simple and low-cost investment options.” He originally decided on a conservative portfolio upon retirement, but moved to a more aggressive portfolio as he hopes that he will still have many years of retirement left.
Re-tired is confident he made the right investment decisions with his retirement savings. However, looking back, he believes his pre-retirement decisions at the start of his working life left much to be desired. “I made up for these poor decisions later, but it was hard work.”
What he would have done differently
“I would have made a point of checking my “retirement adequacy” at least once per annum. For the first 20 years or so of my working life, I used to receive and file away my RA & pension fund statements without really looking at how they were performing. I barely spent 10 minutes per year planning for my 30 odd years of retirement.”
Re-tired’s golden nuggets to keep in mind
Understand the tax implications of your investment decisions post-retirement
RA’s are great when you’re working, but in retirement, a living annuity is just a salary with very few ways of off-setting tax. Re-tired also added that withdrawals from his discretionary investments benefitted from reduced taxation as they’re deemed capital gains.
Earn more or spend less
You’ve made your retirement choices now stick with them and live within your means.
Stay informed but don’t be a slave to bad news
Chopping and changing your investments will cost you money.
It’s a fallacy that you need less money after you retire
Sure there are no more “working or retirement saving costs”, but imagine being on holiday for seven days a week. Everything you do—whether travelling, playing golf or just plain socialising— costs you money.
Saving for retirement is the biggest investment most of us will ever make. Sadly, it can also be very complicated. In this monthly blog, Carina Jooste responds to common retirement questions, ranging from which products are best suited to different circumstances to efficient tax treatments.