By Ester Ochse and Samukelo Zwane

17 November 2024: Although retirement can be a thrilling and rewarding time, long-term financial security and stability depend on careful planning. Making money last during retirement is one of the top concerns for retirees, according to the most recent FNB Retirement Insights Survey 2024. The report notes that South African retirees overestimate their savings and underestimate their expenses, causing serious difficulties with money throughout their golden years. With the cost of living progressively increasing, retirement planning becomes even more important.

Here are 5 tips to consider when planning for retirement:

Have an emergency fund

Less than 27% of South Africans over the age of 60 have one month’s worth of emergency savings. Building up an emergency fund is crucial to safeguard yourself from unforeseen circumstances. One to three months' worth of income should ideally be in a fund that is accessible in less than seven days.

Actively reduce reliance on unsecured debt

Using debt to sustain a lifestyle can impact long-term financial resilience, especially since one is paying money on interest charges. It’s advisable 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 cover

Having home and car insurance can help shield you from paying out of the blue, in the event of an accident or unexpected incident. Ensure your yearly coverage is sufficient and suitable for your needs. The need for medical care and treatment also increases with age, so having the necessary insurance cover will help lower out-of-pocket costs, particularly in cases when hospitalisation may be necessary.

Have the right mix of investments

When investing your retirement savings, the right mix of investment asset classes is vital for ensuring your money lasts throughout retirement. Traditionally, people above 60 defaulted to more conservative or defensive types of assets, such as cash-type investments. However, having growth-type assets in a portfolio is a proven and effective way to beat inflation in the long run.

Don’t withdraw too much from a living annuity

In a living annuity, one can withdraw between 2.5% and 17.5% of the capital amount annually. However, a high drawdown rate significantly reduces the capital amount over time. For example, if your portfolio is growing at 10%, drawing down 10% will reduce the capital amount in 7 years. However, if the portfolio is growing at 10% but you only withdraw 5%, the capital amount will only start reducing in 33 years.

There are a multitude of factors to consider when it comes to both preparing for retirement as well as ensuring that your money lasts throughout retirement. Getting the right advice will help you make the best decisions leading up to retirement while ensuring that you have the right asset allocation to have a stress-free and comfortable retirement.

* Ochse is a product head FNB Integrated Advice and Zwane is a product head FNB Wealth and Investments.

PERSONAL FINANCE