Benjamin Franklin once said the only certainties in life are death and taxes. To that you can add retirement (assuming the Grim Reaper doesn’t interfere earlier). Yet research shows that no more than 10% of us can retire comfortably.
What to do in 7 steps
- Get rid of your debt. Remember interest on your debt compounds and you don’t want to divert your retirement income to paying off debt. Also if you are married in community of property or your heirs have signed as surety or guarantor, they will be responsible for your debt after your death.
The only exception to getting rid of your debt would be if the income and dividends you receive exceed the cost of your debt. Whilst this may hold now, you should ascertain that this will continue into the future.
- Save! As with the cost of debt compounding, so amounts put into retirement funding will also compound and realise more income on your retirement. Don’t forget there are generous tax incentives to help grow your retirement funding – you are allowed to deduct 27.5% of your retirement funding from your taxable income. Ask your accountant to help you find the most tax-efficient method.
Saving is a mentality. Once you get the habit it can be amazing how much you can save. So save now.
- Limit withdrawals. Be extremely prudent when you have to withdraw any savings – weigh up the cost to your retirement and only take out the minimum you require.
- Rainy days. No one goes through life without some form of crisis. We live in an age of uncertainty. Put aside funds for this as you don’t want to eat into your retirement funding to cover a crisis.
In the unlikely event, you don’t ever need to use this rainy day money, it will add to your retirement savings and improve the quality of your retirement. For example, you could even retire earlier.
- Keep retirement top of mind. It pays to constantly review your retirement funding, particularly when important events happen such as a decision to take on a new job or make a major investment.
- Plan and remain flexible. Be prepared to react if obstacles to your retirement arise. If, for example, the value of your investment portfolio declines and you discover you won’t have enough to retire comfortably, find out if you can work say one or two days a week on contract at your firm. Otherwise, see if you can land a part-time contract at another business.
- When is enough actually enough? Many people have doubts as to whether they have enough to retire and delay their retirement. You need to be disciplined about this – if you and your retirement adviser have set targets for retirement, stick to them unless unplanned events make it impossible to achieve your target.
This is a dynamic process and things can change quickly, so always keep this high on your agenda.
Don’t be one of the 90% – take steps to be part of the 10% who save enough to enjoy a stress-free retirement.
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)