Retiring today is not the same as during the days when your parents or grandparents retired. Most likely, your parents worked their entire working lives for the same company. Along with their own contributions and the contributions from the employer, they built up a significant pension fund designed to last them throughout retirement.
Today, job security and loyalty to one employer does not exist as it did before, and many employers no longer pay a portion of your salary towards your pension fund. Normally this pension started paying out on the day you turn 65 (retirement date). Today, employees could change jobs often during their working career, either transferring their retirement savings to their new employer, have it pay out, or just take care of retirement savings privately, without the employer contributing.
Add to this the increasing problem of longevity due to improved medical technology and people living healthier and active lifestyles. According to Statista, a worldwide statistics portal, the average global life expectancy in 2018 is 70 years for males and 74 years for females.
Against this ever-changing retirement landscape, many myths become stumbling blocks on the road to a comfortable retirement. Here, five such myths are exposed:
- You will be able to adapt to a lower income and your expenses will decrease
- It’s too late to make a difference
- You can’t afford to take risks
- Selling your house will generate excess capital
- You can work after 65
Retiring results in a significant change in your daily routine. People budget for a smaller income in retirement believing that their expenses will decrease over time. This may be true for certain expenses such as fuel costs, but other expenses will increase and most likely offset or even exceed any of these savings. Medical costs, entertainment and the cost of a new hobby will most likely increase once you are in retirement. Rather over-budget when it comes to how much you may need.
It is important to remember that annual medical inflation is higher than the official inflation rate.
A successful retirement plan starts early in life. Unfortunately, most people postpone this until they reach their 30s or even later. You may believe that you have reached a point where it is simply too late to make a difference, but this is simply not true, as even a small amount of capital at retirement can increase your options. It might just be enough to ensure you can afford private health care or that you can own a property to live in.
Being too conservative early in your life will limit the capital you have available at retirement. If you have enough time to remain in the markets, a well-diversified portfolio should include a significant amount of growth assets (equities). Always ensure you get sound advice before taking on risks and ensure you understand the impact of the investment decisions you make.
Throughout your life, you will be investing a considerable portion of your earnings into your primary residence, believing that you can sell it and downsize once you reach retirement. Unfortunately, this seldom works out as planned. People find it extremely difficult to downsize and even if they do, they often generate less capital than they expect on the sale of their house, and the cost of a smaller house in a retirement village is often much more than you anticipated.
Most people believe that they will carry on working after age 65. The reality is that you may not be able to keep on working as planned. Factors such as ill health or retrenchment might force you to retire earlier than planned. Rather plan for earlier retirement, to ensure you have some flexibility in adapting for unforeseen circumstances.