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Retirement checklist: Essential considerations before formal retirement

Those nearing retirement cannot afford to leave anything to chance.

When it comes to planning an important event, checklists are a great way to ensure that you’ve taken all important factors into account. With retirement being one of life’s most significant events, those nearing retirement cannot afford to leave anything to chance – and our advice is to consider putting a retirement checklist in place.

Some items on your checklist could include the following:

Inventory of assets

A good place to start when considering your retirement is to collate an inventory of assets. Ideally, separate your assets by type so that you understand the proportionate asset split between retirement funds, business interests, discretionary investments, trust assets, property, etc. Be sure to include current values, the location of the assets, and details regarding ownership structures, specifically in the case of business shares and trust property. Effective retirement planning requires that you take a holistic look at your portfolio to ensure that it is aligned with your goals and that your tax liabilities are minimised.

Planned retirement date

Have a planned retirement date in mind but keep it flexible. Importantly, avoid making any decisions before you are absolutely sure that you can afford to retire. Once you’ve retired and begin drawing down from your investments, it is difficult to address any funding shortfalls, and you may be forced into a position where you need to take on more investment risk than you’re comfortable with or reduce your retirement expenditure to a point where your quality of life is adversely impacted. When contemplating the date at which you plan to retire, be sure to consider a phased approach to retirement or a slower transition from full-time employment to full-time retirement.

Debt elimination plan

Make a list of the debt you have in place and develop a debt elimination plan to ensure that you are able to enter retirement debt-free. If you still have an amount outstanding on your home loan, you will need to strategically assess how best to settle this debt without incurring unnecessary taxes or depleting your discretionary money.

Retirement accommodation

Retirement can span numerous decades, and your accommodation needs at the point of retirement can differ vastly from those 20 years into your retirement – so our advice is to take a long-term view of your retirement accommodation. While you are relatively young and healthy, you may have no problem keeping up with the physical demands of living in and maintaining the family home. However, as you age and become less physically dexterous, specialised retirement accommodation may be necessary – especially if you require assistance with daily living. Generally, there are long waiting lists for retirement homes and care facilities so, even if you plan to continue living independently for as long as possible, be sure to secure accommodation in a retirement facility of your choosing should the need ever arise. Keep in mind that buying and selling property is expensive, so give careful thought to how your retirement accommodation needs could change during the course of your retirement, and how you can provide for them financially.

Risk cover

It’s important to take stock of your risk cover needs when entering retirement, keeping in mind that you should no longer have any debt that requires protection. Many capital disability and dread disease benefits fall away at retirement age, whereas your life cover is likely to be whole-of-life. Life cover can play an important estate planning role in terms of providing liquidity in your estate or providing your loved ones with access to cash while your estate is being wound up, so be cautious of cancelling any life cover before you’ve conducted a thorough analysis in respect of your risk portfolio. 

Post-retirement budget

Ideally, avoid using rules of thumb when determining your post-retirement income needs, and consider your actual situation. Firstly, make a list of those expenses that are likely to fall away when you retire, such as bond and car repayments, long-term insurance premiums and contributions towards your investments. Certain subscriptions and/or membership fees may reduce if you qualify for pensioner rates, while others – such as gap cover and short-term insurance – may increase as a result of your age. If you no longer need to commute to work, your fuel and vehicle maintenance costs could reduce, while on the other hand, you may need to budget for higher entertainment costs once you’ve retired. Your accommodation costs will likely remain the same if you continue staying in the family home, but be sure to budget for an adjustment in living costs should you move to a retirement village or assisted living facility.

Long-term healthcare plan

Budgeting for future healthcare costs is always difficult, but our advice is to take a conservative approach by assuming that medical costs will increase annually at a rate of inflation plus 4%. That said, keep in mind that high-cost medical devices and appliances – many of which are partially covered by medical aid and sometimes not at all – may put additional strain on your finances. Walking aids, medical appliances, hearing and visual aids, prosthetics, and home modifications can require a large capital outlay and it is important to factor in these potential expenses when structuring your discretionary funds.

Gap cover

Many gap cover providers have a cut-off age of 60 or 65 after which membership is no longer permitted, so be sure to do your research and take up membership before the cut-off. Private in-hospital treatment is expensive and, even if you have a comprehensive hospital plan in place, there is always the chance that you will be saddled with medical bills not covered by your medical aid. As you age, your risk of hospitalisation increases, and gap cover remains an excellent, cost-effective way of reducing your financial exposure.

Capital expenditure

Give thought to the capital expenditure you anticipate in your retirement, as this will have bearing on how your investment portfolio will be structured. Capital expenses could include travel expenses, vehicle upgrades, home renovations or wedding costs, so think carefully about the quantum and timing of the capital outlays you could be faced with after you retire.

Joint retirement planning

If you and your spouse are nearing retirement, ensure that you are both on the same page when it comes to your vision of retirement – specifically in terms of when you intend to retire, where you envisage living, and how you would like to fill your days. If your respective goals for retirement are disparate, spend time in the lead-up to retirement finding common ground, making compromises, and building a shared vision of retirement that you can both aspire to.

Multi-generational considerations

Your plans for how you intend your assets to pass on to the next generation need to be taken into account when structuring your retirement investment portfolio, so be clear on these goals before you retire. For instance, if leaving a financial legacy to your adult children is important to you, you may want to consider using a living annuity structure instead of a life annuity; or if you aim to secure the use of your holiday home for future generations, setting up a trust structure may be something worth considering. Similarly, if your business interests form a sizeable part of your wealth, you will need to ensure that you have effective succession planning mechanisms in place to ensure that your business interests are protected and secured for your retirement.

Retirement planning is a multi-faceted discipline, and the act of formal retirement demands that several critical financial decisions be made – none of which you can afford to get wrong. If you’re navigating the years in the lead-up to your retirement, now is the time to start formalising a checklist and understand the gravity of the decisions you are likely to be faced with.

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Craig Torr

Crue Invest (Pty) Ltd

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