A good retirement plan should take years rather than months to design. In the five years leading up to formal retirement, key decisions regarding living arrangements, healthcare and expenditure need to be made to ensure that the final plan is workable. To ensure that your retirement plan is sustainable, consider the following questions in the years building up to retirement:
Where will I live?
Where you intend living in your retirement years will significantly impact the rest of your retirement plan, so it is important to give careful consideration to this. Waiting lists for retirement homes and complexes can be very long so doing your research, making enquiries and paying deposits should be done well in advance of your retirement. If you intend downsizing to a smaller retirement home, you will need to give consideration to where you intend buying, what you could reasonably expect to sell your home for and how much it would cost to purchase a suitable retirement home. When deciding where to live in your retirement, consider the following:
- Your proximity to children, grandchildren and family, bearing in mind that if you do not intend living close to your loved ones you will need to build travel costs into your post-retirement budget;
- Your proximity to doctors, specialists, hospitals and medical facilities;
- Your safety and security;
- The maintenance and upkeep costs of the home, complex or village;
- Any levies, cleaning services or garden services that you will be responsible for paying;
- Your future travel and holiday plans which may require you to consider ‘lock up and go’ accommodation;
- Your pets and whether you will be permitted to take them with you.
How much will I spend?
While the rule of thumb in terms of budgeting for post-retirement expenses is between 70% and 80% of pre-retirement expenditure, this is not a perfect science. Besides for the fact that annual medical inflation way outstrips CPI, bear in mind that it is incredibly difficult to budget for future expenses such as frail care, step-down facilities and/or private nursing, most of which are not covered by medical aid. In addition to budgeting for your normal living expenses, consider the other possible costs in retirement such as:
- Travel costs if your family live far away or abroad;
- The costs of renovating or altering your home if necessary;
- Transfer fees if and when downscaling to a smaller home;
- Vehicle upgrades during retirement;
- Large medical expenses such as hearing aids and wheelchairs;
- Entertainment and hobby costs.
How long will I live?
Longevity statistics can be very misleading because the tables tend to show median life expectancy which is the age at which half the population is deceased while the other half is alive. The reality, though, is that these statistics have no bearing on how long you will live. To be safe, your retirement plan should assume a life expectancy of between age 95 and 100. Advances in medicine mean that humans are being kept alive for longer with chronic conditions, the treatment of which can be very costly. Ironically, the longer we live the more likely it is that we will require fail care or home nursing as natural aging prevent us from performing acts of daily living. Dementia, for instance, is a disease of aging and the longer we live the more likely we are to suffer from it. When contemplating your longevity, give consideration to:
- Your current health status and lifestyle;
- Any existing medical conditions or diagnoses that could impact on your life expectancy;
- If you retire at age 65, be aware that you could be in retirement for 35 years;
- Give some thought to the possibility that your spouse or partner may pre-decease you and this will impact on your retirement plan;
- Consider building the future costs of frail care and private nursing into your retirement plan.
Will I work?
Many retirees use their formal retirement as an opportunity to launch a second career, start a business or pursue a hobby. Some retirees do so in order to generate extra income while others do it merely to remain active and engaged. Very often, retirees choose to implement a tapered retirement which involves gradually working fewer hours over a couple of years so as to ease into retirement. Another option is to take on flexible contract work while testing out retirement. When contemplating your transition into retirement, consider the following:
- You may want to find innovative ways of monetising a hobby or passion which could take some advance planning and testing;
- If you plan on starting a new business, ensure that you do not put your retirement capital at risk;
- If you want to stop working completely, give careful thought to how you will fill your days;
- Find out from your employer whether you are obligated to retire at 65 or whether you are permitted to work longer;
- Find out how your employer feels about working reduced hours or working on a contract basis.
Will I have purpose?
For many people, being employed or running a business provides a sense of purpose and meaning. Many retirees attest to missing the feeling of responsibility that work brings, the camaraderie with their colleagues, schedules and deadlines, meetings and other work-related activities. Post-retirement depression is particularly prevalent in those who had active and purposeful working careers. Before retiring, it is essential to consider what will bring you purpose and meaning in retirement, and into what you intend channelling your energy, bearing in mind that retirement is a journey and not a destination. Before retiring, give careful thought to the following.
- Do you have a lifelong dream that you have always wanted to pursue or achieve?
- What makes you feel fulfilled and purposeful?
- Do you want to make a difference in a someone’s life?
- What will make you excited to get out of bed in the morning?
Will I have a support group?
Having a trusted and reliable support group in retirement is important, especially if your immediate family does not live close by. Places of worship, charitable groups, and hobby and interest groups will undoubtedly form an important part of your retirement network, allowing you to engage with like-minded people who understand what you are going through in terms of your transition to retirement. Unlike the brochures, retirement can be an incredibly stressful period and it is comforting to have people around you who understand the emotional and psychological impact of retirement. Before retiring, consider:
- How will you remain engaged in society?
- Who will you rely on in cases of emergency?
- Will you be an emotional burden to your adult children?
- Where will you get the opportunity to engage with like-minded people of your own age and life stage?