Hindsight may not be a perfect science, but many retirees agree that if they had the chance to do their retirement planning all over again, they would do a lot differently. In fact, according to 10X’s Retirement Reality Report 2018, 50% of retirees said they would change their retirement planning if they could start over. Besides simply not having saved enough money, here’s what retirees regret the most:
- Not seeking professional advice earlier
The most basic mistake that many retirees attest to is not having sought professional advice earlier. Many assumed that the contributions to their workplace retirement fund were sufficient to secure a comfortable retirement and, as such, didn’t feel that professional advice was necessary. Some retirees admit to feeling embarrassed that they hadn’t saved enough and didn’t feel that an advisor could do much to help them. A common feeling among those who have already retired is that they should have found an independent financial advisor long before they actually went on retirement. Many admit to wishing they had employed an adviser who could help structure their investments, determine whether they were able to retire, assist with their estate planning and minimise their tax burden.
A lot of retirees regret that they didn’t start investing with their first pay cheque. Getting married, buying a house and having children meant that retirement funding was always put on the back-burner. According to 10X’s retirement report, 46% of respondents only began planning for retirement after settling down and having children and, as a result, missed out on years of compound growth.
- Not taking advantage of tax-efficient retirement vehicles
Old-school insurance retirement annuities lacked transparency and penalised investors heavily for termination or early cancellation and many retirees avoided using these vehicles to fund their retirement. Despite changes in legislation and the advent of cost-effective unit trust retirement annuities, many retirees admit to having shied away from these investment vehicles despite the tax incentives provided. With the benefit of hindsight, retirees wish they had used the opportunity to effectively invest with before-tax money.
- Not preserving capital
A huge regret by many is not having preserved their retirement funds when changing jobs or moving between employers, thereby interrupting the effects of compounding. While they thought the money could be put to better use, such as paying off vehicles or financing a family vacation, looking back many retirees regret the unwise decision to access their accumulated retirement funds.
- Delaying joining a medical aid
While young and healthy, many people choose not to join a medical scheme and to ‘take a chance’, as it were, by paying personally for their healthcare expenses and hoping not to end up in hospital. However, the purpose of a medical scheme is to provide cross-subsidisation between the young and old, and the sick and the healthy. With age comes ill-health. Many retirees attest to having joined a medical scheme too late and now having to contend with late-joiner penalties. Depending on your age and the number of years you haven’t belonged to a medical aid, your premium can be loaded by between 25% and 75% – and this loading remains in place for life. With medical aid premiums increasing around 10% every year, late-joiner penalties can be an enormous financial burden for a retiree.
- Underestimating healthcare expenditure in retirement
Despite comprehensive medical aid and gap cover, many retirees admit to hopelessly underestimating their retirement healthcare expenses. Besides medical aid shortfalls and co-payments, the costs of frail care, private nursing and assisted living are enormous and very difficult to quantify.
- Have too much debt in peak earning years leading up to retirement
The decade leading up to retirement is an opportune time to bump up retirement funding, especially as most people have paid off their home loans and vehicles by this stage and are generally at the peak of their earning level. In addition, adult children have generally finished studying and have become financially independent. Rather than using the additional cashflow to boost their retirement investments, a lot of retired people regret having used the money to upgrade their lifestyles, buy flashier cars and reward themselves with overseas travel. The habit of living above one’s means is difficult to break once you reach retirement and are faced with the reality of a fixed income.
- Retiring too early
The average retirement age in South Africa ranges between age 60 and 65, meaning that it is perfectly possible to have a retirement that lasts over 30 years. According to the US Social Security Administration, 25% of 65 year olds today will live past age 90, and one out of every ten will live past age 95. While retirement at a certain age may feel like a rite of passage, it takes very careful planning and a number of stress-tested assumptions. Making a career comeback after you’ve retired is not easy to achieve, and many people regret retiring too early and being overwhelmed at the length of their retirement.
- Not setting retirement goals
As much as retirement may be longed for, many people end up feeling bored, lonely and unfulfilled as soon as the novelty of not having to work starts wearing off. Just as important as planning your retirement finances is setting your retirement goals. Many who have already retired say it’s not so much what you plan to do in retirement, it’s what you plan to achieve that really counts.
- Not downsizing sooner
Delaying the inevitable move to a smaller home, retirement village or townhouse complex is a mistake made by many retirees. Clinging, often for sentimental reasons, to the family home is regretted by many retired people who, with the benefit of hindsight, wish they had downsized sooner. The freedom that comes with less home maintenance, more personal security and fewer responsibilities is something that many retirees are pleasantly surprised by and regret having taken so long to make happen.