5 Smart Tips to Simplify Your Retirement Planning Journey

Make your retirement something to look forward to by taking the essential steps early on to secure long-term financial security and stability.

According to Survey 2024, South African retirees overestimate their savings while underestimating their expenses, resulting in major financial issues throughout their golden years. With the cost of living steadily rising, retirement planning becomes more important.

Here are 5 tips to help you achieve exactly that:

Have an emergency fund: Less than 27% of South Africans over 60 have a month’s worth of emergency savings. Building up an emergency fund is critical for protecting oneself from unanticipated occurrences. One to three months’ income should be kept in a fund that can be accessed in fewer than seven days.

Reduce your reliance on unsecured debt: Using debt to sustain a lifestyle might have an influence on long-term financial resilience, especially if you’re paying interest. It is recommended to spend no more than 15% of your income on unsecured credit, which includes overdrafts, personal loans, and credit cards.

Protect yourself against loss with insurance and medical coverage: Having home and car insurance can protect you from unforeseen expenses in the event of an accident or incident. Ensure that your yearly coverage is adequate and appropriate for your needs. The need for medical care and treatment increases with age, so having the right insurance coverage can assist reduce out-of-pocket expenses, especially in cases when hospitalization is required.

Have the correct investment mix: When it comes to investing your retirement savings, having the right balance of investment asset classes is critical to ensure your money lasts throughout retirement. People over the age of 60 have traditionally gravitated toward more conservative or defensive asset classes, such as cash investments. However, include growth assets in a portfolio is a tried-and-true method of beating inflation over time.

Do not withdraw too much from a living annuity: A living annuity allows for annual withdrawals of 2.5% to 17.5% of the capital amount. However, a high drawdown rate dramatically decreases capital over time. For example, if your portfolio grows at a 10% annual rate, pulling down 10% will lower the capital amount in seven years. However, if the portfolio grows at 10% per year but you only withdraw 5%, the capital amount will not begin to decline until 33 years later.