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Planning for a modern retirement

Today’s retirement bears very little resemblance to a retirement of even 20 years ago. Not only is the retirement funding industry significantly more complex, but increased human longevity has made planning for a longer period in retirement somewhat trickier to get right.

Retirement planners have had to gear their advice to accommodate a more modern notion of retirement with its many idiosyncrasies and adaptations, and in some instances, this modern retirement is a wholly disrupted version of the traditional retirement.

Global families

More and more South African families find themselves widespread around the globe as a result of a number of pull and push factors. While some South African families settle abroad to escape rampant crime and corruption, other seek to pursue career opportunities that are not available locally.

Whatever the reason for emigration, statistics show that approximately 23 000 South Africans emigrate from this country every year, and that the number of South African-born persons residing outside of South Africa has increased from 330 000 in 1990 to 900 000 in 2017 – an average of 21 000 South Africans per year. Naturally, emigration has slowed down over the 2020/2021 period as a result of the coronavirus and closed borders.

The rise in emigration has had a significant effect on retirement planning, and the impact of having adult children living abroad needs to be taken into account when putting one’s retirement plan together. For those retirees with family members living abroad, naturally the cost of international travel will need to be built into your retirement plan, keeping in mind that these costs can be significant if you have a number of adult children residing in different countries.

Also important to consider is that travelling internationally becomes more difficult as you age and become less physically mobile, which means that the bulk of your international travelling costs would need to be incurred in the early stages of retirement, and this can significantly impact on your future retirement funding.

That said, probably one of the most significant effects of having your adult children living abroad is not having close family to care for you later on in your retirement years. The heartbreaking stories of elderly people confined to their retirement homes during the coronavirus pandemic, while their adult children living abroad were unable to travel, really brought to light the plight of many elderly people who are wholly dependent on their paid carers to look after them.

With this in mind, a critical part of your retirement plan would be the need to put a long-term healthcare plan in place to ensure that you can afford high quality assisted living or frail care if/when the time arises.

Transitioned retirement

Many forward-thinking companies are experimenting with what is referred to as a phased or transitioned retirement. As opposed to a sudden departure at formal retirement age, companies are allowing older employees to slowly reduce their working hours and to transition slowly into a lifestyle that looks and feels like their vision of retirement. Not only does a phased retirement allow one to continue generating an income, albeit a gradually reduced income, it also allows one to get a feel for what a full retirement would look like.

Knowing that your transition into full retirement is going to be phased in over a period of time can also help reduce the stress and anxiety that many pre-retirees feel at the thought of suddenly disengaging from the workplace.

It is well-documented that many retirees suffer from depression and stress in the early stages of their retirement, often brought about by a sense of purposeless and lack of self-esteem.

A phased retirement will necessitate careful planning to ensure that you make timeous and appropriate decisions with regard to your retirement funds and other investments, especially when it comes to managing cashflow and reducing your tax liabilities.

Sandwich generation

With the vast majority of South Africans being desperately under-funded for retirement, many households currently have three or more generations living under the same roof. However, such arrangements are often brought about, not as a result of financial need, but rather as a communal living arrangement that works for everyone, especially when it comes to childcare.

The rise in working-from-home arrangements coupled with interrupted schooling over the past 15 months has led many working parents to realise the benefit of having their retired parents close by to assist with homework, transporting of children, meal preparation and other chores.

Larger residential properties lend themselves well to such arrangements, and many working parents have adapted and/or renovated their homes to accommodate their retired parents. Living with one’s adult children in your retirement years can result in significant cost saving, especially considering the high cost of retirement village accommodation. That said, you will need to consider how you will be cared for later in your retirement should the need arise. Your retirement plan should therefore factor in the future costs of home care, private nursing, frail care or assisted living.

More active

Keeping healthy and living longer means that more and more South Africans are enjoying a physically active retirement. The notion of sedentary retirement is unappealing to many who seek to take advantage of their free time to enjoy exercise, travel, pursue their hobbies more fervently, or become more involved in their charities.

Whatever your vision for exercise and activity in retirement is, be sure that your retirement plan budgets for these costs so that you are not financially restricted from living the retirement you dream of.

Estate living

The retirement living industry in South Africa is thriving, with more and more upmarket retirement villages being built to accommodate the desire of many South Africans to retire to security estates that can accommodate their future healthcare needs. The traditional ‘old age’ home lacks appeal for most, and retirement villages tick all the boxes for many who are looking for a combination of community, security, amenities, and care.

With most retirement villages being structured on the basis of life rights, buying into such an estate is more affordable than taking ownership of a property with the added advantage that the retiree is not responsible for maintenance or upkeep of the property. If your intention is to buy into a retirement village at some point during your retirement, it is always advisable to start building this eventuality into your planning so that you can budget accordingly and begin looking at options.

Dementia

Many diseases and ailments are a function of growing older. Not only does living longer mean that you will need to budget for your future living costs, but that you will also need to ensure that your retirement funds are sufficient to cover your escalating healthcare costs. Importantly, living longer increases your chance of suffering from dementia, and you will need to factor this into your retirement plan.

According to the South African Journal of Psychiatry, the prevalence of dementia is approximately 5% to 7% of the elderly population, starting out at around 1% for those aged 60. Thereafter, the prevalence doubles every 5.1 years, rising to between 30% and 45% of those aged 85.

Of the estimated 250 000 dementia sufferers in South Africa, around 35 000 of them suffer from Alzheimer’s disease. While 20% of Alzheimer’s patients are alive after 15 years of diagnosis, the mean duration of this illness is between 10 and 12 years.

As such, your retirement scenario planning should factor in the possibility of a dementia diagnosis later on in life and put plans in place to mitigate the financial risks and cover the costs of the resultant care you would require.

The move away from the concept of traditional retirement means that retirees have more options, greater variety, and in many cases a longer retirement period available for which to plan – making retirement planning more important than ever before.

ADVISOR PROFILE

Craig Torr

Crue Invest (Pty) Ltd

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COMMENTS   1

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I enjoy reading your articles and articles on retirement, since I am in retirement.

Of all the articles published very few addresses the significant many, and focuses “few”. Because of our unequal society, more should focus on the vulnerable, even to a point where government is pressured.

This may be off topic but…

The exploit of fees charged is seldom addressed. This is significant, since it affects growth in the latter years.

One would have thought that fees should be lower, once retirement is reached since over a period of many years, a higher fee was mainly applicable.

The 10x giraffe makes lots of sense

End of comments.

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