Retirement questions
15Jan, 2021

Rebooting retirement planning post Covid-19

By: | Tags: , , , , | Comments: 0 | January 15th, 2021

In a recent survey to assess the impact of Covid-19 on retirement planning*, 66% of respondents stated that the lockdown had affected them financially. Among the steps they had to take to stay afloat were:

  • Finding another source of income
  • Making special arrangements with creditors to pay their bills
  • Asking family and friends for financial assistance.

Over one-third of respondents dipped into their retirement savings. While some saw this as ‘borrowing’, a quarter of those who used their savings believe it is a permanent disinvestment or loss – which doesn’t bode well for their financial future.

South Africans are already notoriously lax about saving for retirement. Only about 6% of the population has saved enough to be able to retire comfortably. Lower income earners, in particular, find it difficult to save. Planning is especially difficult for those who are not in formal employment and/or who are unable to reduce expenses (e.g. cost of managing chronic medical conditions). Many spend everything they earn every month (if not more) and plan to carry on working until the day they die.

50% of those surveyed said they would rely on financial assistance from their children or grandchildren when they retire. Only 15% indicated that they would retire on a Government pension.

Pandemic forced people to think about retirement planning
The survey, which focused on people aged 50 and upwards across all race groups and income levels, revealed that the pandemic has forced people to give more thought to retirement planning.

90% of respondents mentioned the importance of paying off mortgages and credit card debts in order to have sufficient income to cover regular bills for the rest of their lives. 82% were aware that they might need to plan for medical expenses and long-term or frail care in their golden years, while 78% hoped to be able to leave money for their children and grandchildren.

The survey didn’t drill down further into how these different goals translate into specific actions that need to be taken now. For example, you may succeed in paying off your mortgage, but will you still be able to maintain your home as you get older and less fit and mobile? Will it still be suitable, or will it be too large (and lonely) if you lose your spouse? Are there steps or small, tricky spaces in the bathroom that will be a problem if you are confined to a wheelchair later on?

Long waiting lists
It could well be that you would be more comfortable in an old age home or retirement village – especially if you need frail care when you are older. But many of these, especially the more affordable places, have long waiting lists. It’s a good idea to add your name to the waiting list early … long before you actually need to move in. If your name gets to the top of the list before you are ready to take occupation, you can always relinquish your place to the next person on the list. Tafta has an online application system that makes the process quick and easy.

If leaving money to your children is important to you, buying into a life rights retirement development may not be your best option. Read the fine print carefully. When you buy on a life rights scheme, you never actually own the property – you are only entitled to use it for the rest of your life.

Life Rights
After your death, or if you change your mind and want to vacate the property for some reason, the owner is entitled to resell it. Depending on the number of years you’ve occupied the property and the specific terms of the agreement you signed, your heirs may or may not receive a portion of the original purchase price and/or any profit after the cost of reselling and refurbishment has been deducted.

Tafta’s Life Rights scheme guarantees that you (or your heirs) get back 100% of the purchase price or 80% of the resale price – whichever is the lesser. View Tafta properties available to buy on Life Rights.

Although most of the people surveyed in the Just Retirement study are aware of the need to plan ahead and save for retirement, they admit that they have difficulty choosing the best retirement products/investments and are not confident of achieving their goals.

Do you have enough saved to retire?
Three in five respondents said they were not sure that they have enough money to last. Newly retired people in the 65-70 age group had the least confidence that their savings will be sufficient.

Most confident were those in the 50-54 age group, who possibly feel they still have sufficient time to build up their savings, and paradoxically, older people (71-85) who have a decade or more of experience in managing on their retirement income.

Covid-19, with its widespread job losses and salary cuts, brought us face to face with the dire consequences of not having a nest egg or ‘rainy day’ savings to fall back on. And it was a grim precursor to what life might look like after we retire.

Make retirement savings a priority
Even if you feel that you can’t save for retirement because you just don’t have enough money, it may be time to relook your priorities. Making saving a priority means that you will have to do without something else that you want or need. It’s good to know the difference. Even things that you think you need – a new phone, perhaps – should be carefully assessed.

It’s also helpful to know exactly what you are spending your money on. You may think you do, but do you really? The takeaway coffee on the way to work or the chocolate bar slipped into your basket while you stand in line at the till only cost a few rand. But if you do it often enough, these non essentials can mount up into several hundred rand a month.

Living more frugally is a habit that has to be learned. It’s not easy when there are so many temptations or pressure to keep up with friends who always have the latest gadgets and designer clothes. But it is possible to learn to appreciate what you have and find peace in simplicity. Perhaps this is the greatest lesson that Covid-19 and the lockdown have taught us.

[* Just Retirement Insights Lite 2020]