Over 50 with no retirement plan – where do you start?
You have just reached the half a century mark and your retirement savings are non-existent. You suddenly realise this because your priorities have changed. You aren’t rushing around after children or paying grudge debts (mortgage, children’s education costs, etc.). It’s time to act now if you want to be secure in retirement, finds Angelique Ruzicka.
In your 20s it’s easy to delay thoughts about retirement planning. You’re young and carefree and have plenty of years left to worry about saving for your retirement. Travel and dating may currently be your only concerns. In your 30s and 40s you may be settling down though and raising kids. You may have debt and other financial obligations to worry about, so again you delay your retirement savings. You may have saved into some retirement annuity or other along the way but as you switched jobs you used that money to pay off debt, your home or created that outside Lapa entertainment area that you’ve always wanted.
But all these plans may now leave you in your 50s with no plan or retirement savings to live off. Suddenly, at 50, retirement is not so far down the road. Heck, you wanted to retire by age 60 or 65 and now you only have 10 – 15 years left to save. An alternative could be to work beyond the age of 65. While this is not ideal, it’s a reality you may need to confront if you don’t have any other assets that you can rely on to fund your retirement lifestyle.
Either way, your planning needs to start now because you have to play catch up. And this will be an upward battle as you won’t have the benefits you would have had, had you started saving in your 20s.
“The hard reality is that you would have missed the opportunity to make the most of compound interest by investing early. There are different strategies for saving for retirement. It is important to get advice, even with only 10 or 15 years left, it is possible to save for retirement in that period but nothing beats starting as early as possible,” says Mark Lapedus, divisional director of proposition enablement at Liberty.
If you haven’t saved up for your golden years or any assets to your name that you could sell, invest or live off you may think or be considering living off State grants. However Jeanette Marais, director of distribution and client service at Allan Gray, warns: “The South African government’s old age grant is R1500 per month, so it’s probably not such a good idea to bide your time thinking you can rely on the state pension.
“People often make the mistake of thinking if they cannot save enough they shouldn’t worry about saving at all. Taking steps to develop a savings habit and living within your means, is more important than the amount. It is about getting started rather than the amount. Procrastination only makes us poorer.”
Time to get serious
While starting in your 50s with retirement saving is not ideal, Marais believes it’s never too late: “Saving for your retirement should begin the first day you start working, as most financial advisers will tell you. But for those in their fifties who have delayed investing, there is still time to save if they follow a more aggressive, disciplined approach. It is never too late, but don’t wait any longer – and accept that you may have to make some sacrifices to make up for lost time.
“It is never too late,” agrees Lapedus. “But the question is rather: can you still save enough? This will depend from person to person and their particular financial circumstances, also what type of retirement they will be expecting. You may have to be willing to accept a lower standard of living if you can’t save enough.”
Working out what you get
Johann van Tonder, an economist at Momentum based his example on a person who is 50 years old, has no savings and retires at age 60. The person earns R15k a month. These are the various income retirement scenarios:
- If he starts saving 10% of his income – R1500 per month – and retires at 60:
He will have the equivalent of 8% of his current monthly income which is R1200 per month in today’s terms.
- If he starts saving 20% of his income – R3, 000 per month – and retires at 60: He will have the equivalent of 16% of his current monthly income which is R2400 per month in today’s terms.
- If he starts saving now 20% of his income – R3, 000 per month – but retires at 65: He will have the equivalent of 31% of his current monthly income, which is R4650 per month in today’s terms.
- If he starts saving now 33%% of his income – R5, 000 per month – but retires at 65. He will have the equivalent of 50% of his current monthly income, which is R7500 per month in today’s terms.
- If the person wants to retire with 70% of his income at age 65, or the equivalent of R10500 in today’s terms, he will have to save 45% of his income or R6800 per month from now onwards to age 65.
Where to cut back
If you can’t save close to 45% of your income now to retire on 70% of your income, you will have to make some sacrifices if you are serious about saving for your golden years and want to be comfortable. Joanne Brown, principal consultant at Momentum Consult advises on adopting some drastic measures to free up some cash to fund your retirement pot. These include:
- Scaling down your home: “Sell it. Buy smaller and cheaper but be sure to check the capital gains tax implications. This will lower running costs e.g. rates and taxes and actual maintenance. Invest the profit from the sale into either your pension/provident/retirement annuity fund (retirement funds) or directly into a personal diversified investment portfolio (unit trust or alternative collective investment scheme),” says Brown.
- If you don’t own a property, rent a smaller or cheaper one. You’ll benefit from no property tax or maintenance costs. “Compare all the costs of buying to the overall costs of renting. Don’t leave out any aspect e.g. garden, security costs, painting, damp repair, roof repairs, burst geysers, transfer duty, bond registration, pool maintenance etc.,” advises Brown
- Scale down on your car. “Especially if you still have car repayments. And even if you don’t. Ask yourself if this expensive depreciating asset is worth more to you than paying medical bills during retirement? Scale down to reduce monthly repayments or in fact no repayments, to reduce fuel bills, insurance premiums, maintenance costs etc. Remember, you are resetting your priorities with a lot more foresight. For some this measure is too “drastic”. Get over it,” says Brown.
- Cut down on the use of your cell phone. Don’t be tempted to upgrade. “Carefully re-assess your current cell phone monthly bill. Can you scale down? Most people overspend on cell phones. Be content with the iPhone 6 instead of the new iPhone 7,” says Brown.
- Don’t shop at the most expensive outlets. “Become a more cost conscious shopper. Buying online – prevents impulse purchases. Peruse the “Special Offer” brochures. Pennies make pounds (but don’t drive an extra 50km for a R1 saving!). Buy necessary non-perishables in bulk (if significantly more cost effective),” adds Brown.
- Cut back on general, thoughtless overspending. Takeaways and restaurant visits are a good place to start reducing. “Takeaways are a habit. Sure, spoil yourself every now and again but cut down on these. We all know they are generally unhealthy and good health means lower healthcare costs, medical aid discounts and less medical bills when you’re older. Investing in your health is one of the biggest cost savers over time,” advises Brown.
Ultimately, when you are saving for retirement and making sacrifices because you started saving late it’s about differentiating between needs and wants (luxuries). You think you feel hard done by now, having to cut back? Wait until you want to retire but you have to carry on working. “Imagine moving in with your children where they have to support you. Didn’t someone say “you can’t buy happiness”? It’s a mind shift. An absolutely necessary mind shift,” says Brown.
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