While many people dream of a care-free retirement in their so-called ‘golden years’, the reality is that retirement can be a particularly stressful life stage. In fact, the act of retirement itself is considered one of the top 10 most stressful life events. In this article, we examine six of the biggest stress factors in retirement and how you can reduce anxiety through effective retirement planning.
Outliving your retirement capital
Running out of money is a massive concern for many retirees, especially given the poor market returns experienced over the past five years. On the back of low market returns, many retirees have been further financially impacted by the coronavirus and subsequent lockdown, rising healthcare costs, and increasing costs of energy. There are a number of ways in which you can fortify your retirement plan to ensure that you don’t outlive your retirement capital, with the first step being to develop a comprehensive retirement plan, preferably in partnership with an expert in this field.
In developing your plan, you will need to determine your monthly living expenses and build in realistic annual increase assumptions, bearing in mind that healthcare costs outstrip annual inflation year-on-year by about 4%. Another important factor to consider is the extent to which your portfolio is diversified and whether your investments are exposed to the right amount of risk given your investment horizon.
If you’ve retired early, you may realistically be looking at a 30-year investment horizon and being invested too conservatively over such a period can result in your capital losing value in real terms. If you have a blend of discretionary and compulsory investments, you will want to draw down from your investments in the most tax-efficient manner in order to avoid paying unnecessary tax. In addition, you will want to ensure that you draw down from your living annuity/annuities at the correct level to avoid depleting your capital too early or running into cashflow problems later in retirement. Your advisor should give you comfort by doing careful cash flow modelling to determine the most appropriate levels of drawdown taking tax, living costs, inflation and longevity into account.
Death of a spouse or partner
The death of a spouse is regarded as life’s number one stress factor and, sadly, losing a spouse is most likely to happen during your retirement years. While one can never be emotionally prepared to lose one’s life partner, careful estate planning can help alleviate the emotional burden on the surviving spouse. In the absence of an estate plan, grief can be compounded by financial uncertainty, and the effects can be devastating.
Ideally, your advisor should develop ‘first-dying’ and ‘last-dying’ spouse scenarios as part of the estate planning process to determine what the death of one spouse will mean financially for the surviving spouse. This process will include calculating estate duty, CGT, tax and estate liquidity for each spouse, as well as revising the income needs of the surviving spouse. Your advisor will also determine the spousal benefit on any pension or annuity that you have in place, and the extent to which the surviving spouse will be impacted.
Further, your planner should ensure that your respective wills are correctly structured and aligned with your overall estate plan to ensure that no complications or confusions arise later on. Finally, one of the best things you can do for each other is to collate your financial and legal documents in a central file – something which will greatly facilitate the estate winding-up process. A winding-up process can experience major delays where basic documentation such as title deeds, marriage certificates or divorce orders cannot be found.
With ageing comes ill-health, specifically diseases such as cancer, heart disease, dementia, joint disease together with mobility problems. Being realistic about your future healthcare costs means making conservative assumptions about longevity and building adequate medical inflation assumptions into your retirement plan.
In an effort to cut costs, you may be tempted to downgrade your medical aid option, which is not always a good idea as you may end up paying more for out-of-pocket medical expenses than you save on premiums. Allow an experienced healthcare advisor to assess your current medical aid plan while taking into account your health status and existing conditions. Talk to your advisor about the costs of long-term care assuming that you and/or your spouse may need to pay for assisted living, frail care or private nursing at some point in the future.
While you may be in good health now, consider that there may come a time when disease or ill-health can strike, and prepare your retirement plan accordingly. Do your research into retirement villages and homes that offer frail care and assisted living options, investigate the costs involved, compare the costs of frail care facilities versus home care, and put your names down well in advance if you feel that a retirement home or village is an option for you in the future.
Adult children emigrating
Besides the emotional strain of having your adult children, and possibly your grandchildren, relocate to another country, it is quite possible that their departure will result in your support system collapsing. Many ageing parents rely heavily on their adult children for physical, emotional and logistical support, the extent of which having been made more obvious during the Covid-19 lockdown.
Running errands, helping with grocery shopping, assisting with technology and online banking, transporting, physical assistance with performing daily tasks, attending medical treatment, and managing financial affairs are just some of the ways in which adult children support their elderly parents, with dependence increasing as their parents grow older.
If your children have emigrated or are planning to emigrate, you will need to give careful consideration to your support system and put plans in place to ensure you will be adequately supported once they’ve left. With banking and investments becoming increasingly digital, you may feel overwhelmed at having to navigate this sphere alone. First prize is to find a trusted, independent advisor who can help you manage your investments and who you trust to give you unfettered advice.
Give thought as to who you would give power of attorney to if you are unable to attend to your affairs, and the extent to which your adult children can assist you from a distance. If you intend travelling to visit your children overseas, be sure to revise your retirement plan to account for these additional expenses.
Selling the family home
Many retirees hold onto the family home for sentimental reasons only to find themselves burdened with a large property, costly maintenance and upkeep which makes them feel overwhelmed, and it’s an illiquid, risky asset. Moving home is always stressful, but particularly so when you are older, less physically adept and have strong emotional attachments to the home. Further, waiting too long to sell your home can mean that you are forced to realise the asset in unfavourable market conditions, which in turn can detrimentally affect your retirement plan.
Your advisor should be able to prepare different models for you demonstrating the effects of realising your home at different stages during retirement so that you can make informed decisions. In the scenario planning process, the modelling should demonstrate the extent to which the proceeds from the sale of your home can help fund a suitable retirement home and how the balance of the proceeds, if any, can be used to fortify your retirement capital.
Most importantly, careful modelling can help take the emotions out of the decision-making process by focusing on the net financial effects of selling versus retaining the family home. Having a clear picture of the long-term financial consequences of your decision to either sell or keep the family home is critical to sound retirement planning.