Four common mistakes that could ruin your retirement…

According to the South African Medical Research Council, the average life expectancy in South Africa is only 64.7 years. However, the British economist and world’s leading expert on longevity, Andrew J. Scott, says we need to start planning for a life that lasts until the ripe old age of 100. If you retire at 65, that would mean a retirement period of 35 years. almost as much time as you spent working if you started earning a salary at 25!

Here are the common retirement planning mistakes you should try to avoid:

1. Underestimating how long you’ll need your retirement income to last

Bjorn Ladewig, head of distribution at specialist retirement income company Just SA, says Just SA’s research reveals that 60% of people retiring or approaching are unsure if their income will cover their monthly expenses. during retirement.

Instead of planning for a 20-year retirement period, ask your financial planner to create different scenario plans in which you will live for 20, 30 or 35 years after retirement age. Your planner can make sure you’re saving enough or put together a workable retirement plan. Retirees increasingly continue to work after retirement, and additional or freelance work can increase your retirement income.

Shaun Duddy, product development manager at Allan Gray, says that to have a 90% chance of not exceeding their planning horizon, people with annuities should plan for about 40 years at age 55 to 10 to 15 years. at 85 years old. .

2. Giving too much importance to a legacy of capital

Ladewig suggests that instead of being conservative about leaving money to heirs, you should focus on reducing the risk of becoming dependent on your loved ones later in life. This means making sure your retirement income is guaranteed to cover at least your essential expenses.

3. Believing it’s all or nothing

Most people think they should put all their money into a living (flexible) annuity or a life (guaranteed) annuity. An annuity allows you to withdraw an amount each month, between 2.5% and 17.5%, and you can change your withdrawal rate annually. This is a product typically designed for a very disciplined investor. A life or guaranteed annuity is one that allows you to agree on a fixed monthly amount and you can stipulate the period in which it will be paid, 20, 30 or 35 years. However, Ladewig says he has a third option: mix the two with a blended annuity approach. “The income from the annuity component provides you with enough peace of mind and liquidity to finance your essential expenses for daily life. The remaining annuity assets can be invested to provide long-term capital growth,” she says.

4. Withdraw from your retirement savings to address current shortfalls

In the wake of Covid-19, and the widespread financial hardship that many people experienced as a result of two years of closures, thousands of South African employees chose to quit or were forced to quit their jobs and proceeded to collect a portion, or everyone, from their retirement savings.

Elize Giese, executive director of employee benefits at FNB, cautions that this course of action has significant tax implications if you choose to take your benefit as a lump sum. “You will only receive a tax-free amount of R25,000 and the rest of your benefit will be taxed in the retirement benefit tax table,” she explains. “But more worrying is the fact that he’ll probably never be able to fully recoup the savings he withdraws for the rest of his career, which means he’s … ending his hopes of being able to retire with financial security.”

Giese says that when you withdraw your retirement savings early, you’re not just taking money out of your retirement, you’re also taking time, which means you lose the growth and compound interest the money would have earned if it had stayed invested until its due date. retirement officer. DM168

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available nationwide for R25.

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