NASTASSIA ARENDSE: This is a conversation I had with Patrick from Glacier by Sanlam, about retirement being like building a house.
PATRICK SHEEHY: You could use the analogy of building a house. I think we could say planning for retirement is quite similar. I guess in the same way that you create your dream home you need to build that dream retirement, for people that will aspire to it in terms of how they see how they would like to retire.
First and foremost is laying the foundation. You need to invest the time and the effort in what we refer to as the construction phase, to ensure you can create a foundation that will provide for retirement, and provide adequately for retirement.
And I guess as a house you don’t have to go it alone, and in fact it’s not advisable to go it alone. It’s advisable to get a jacked-up opinion. There are plenty of qualified experts to guide and to advise. Consider the typical phases when you go about building a house, you start with the basic phase, which is a plan. Yes, you can build a basic house without a plan, but it may be a bit better to have solid foundations, etc. So you need a plan.
In that same way you bring in the expert advice when you start with a the planning. You need to ask yourself, and retirees ask themselves some very, very far reaching and important questions. First and foremost is when do I want to I retire? Have a date, whether that be 55, 60 or 65, and understand that you may not be able to retire when you plan for it. In some cases you may have to retire a bit earlier, and in some cases you may be forced to retire later.
You need to know how much you are going to need to save, how much you can afford to save.
And then honestly consider: is my plan going to sustain me? One important point here is to consider a five-year delay in starting to save for retirement can mean a 50% difference in the money that’s available at retirement. It’s something really to ponder on. It’s always advisable to start, the sooner the better. Even if it’s just a little bit, start saving early. That doesn’t always appeal to the 20-year-old, the 25-year-old who’s got his sight set on that car or something like that. But put a little bit away and you’ll see the cents grow into rands, and the rands go into a retirement plan.
If you look at it from that perspective, as I mentioned in the previous slot, many retirees are concerned about the effects of inflation. So again, make allowance for that. Don’t just factor in what you’ve got today. Make allowance for how the value of money is going to change by retirement, and build in provision for that.
Then move on to the next phase, which is a very exciting phase when building a house, which is the laying of the foundations. Now you can start to see things happen. But boy oh boy, if you get the foundations wrong and don’t lay them correctly, there will be dire consequences for the house – and for the retirement plan.
I reiterate, start early. Make provision for emergencies. Things can happen. There can be curve balls. There can be health events, a family issue, with you needing to ease off from retirement saving and redirect money. So make plans for that. And stay true to it.
The next stage really is now you can see the whole thing starting to take shape, and we are erecting the frame and we are putting on the roof, etc. Here again it’s about you’ve made a commitment and don’t get side-tracked. Continue with that commitment.
When you receive that end-of-year bonus, if you are fortunate enough to receive one, don’t treat it as a lump sum that’s available to spend. Think about putting some of that away towards your retirement savings, remembering that in retirement once you’ve left the employ, there aren’t 13th cheques necessarily or the bonuses that will come through. So use part of that to subsidise that.
Then you get to the phase of moving in, and it can be stressful, absolutely no doubt. Even people who’ve moved houses know the stresses associated with moving from one house to another or indeed moving into a new house. That can be incredibly rewarding. And the beauty of it is that if you plan properly and with diligence it can be much, much more rewarding for you.
At retirement consider the lump sum. Unfortunately it’s a big temptation to spend that lump sum and particularly the tax-free portion, to spend that and invest in something very nice to reward ourselves. That could cost you in time. So think about investing that as part of the retirement savings.
Bear in mind and consider the options that are available and think seriously about these, and get objective advice about what those options are. I mentioned in the previous interview that you can keep those savings in the pension fund and a provident fund. You don’t have to get those funds out.
Think carefully about, I am going to say, the pros and cons of the different products. There are a lot of products out there, all providing for in essence the same need, but different variants of the same. And there are products that provide guarantees and products that provide wide levels of investment choice. Don’t just think about the money that comes out of the pension fund, because for many people all those savings are as important or sometimes even more important than the money that’s coming out of the pension fund, and they are going to be using that to subsidise the pension that they will receive from the retirement savings. Look at the whole lot and consider what the best options are.
Very, very important of course is the maintenance. All of us know that if you don’t do the maintenance side of it then the house can very quickly go into a state of disrepair and look a bit derelict, etc. The same can happen with our retirement savings.
It’s true, what you are spending your money on is your expenses. Don’t leave things to chance. So review those things on a regular basis and there may be options available. If you find that retirement income is not sufficient, and you certainly don’t want to start eating into the capital, you need to consider jumping into the economy and doing something to subsidise that income. Maybe you need to review that.
It is important for the person who believes that the retirement savings are under a bit of stress, other than the person who is overly concerned about how much they are spending. What can happen is the individual becomes so nervous and so apprehensive about the risk of actually overspending that they actually don’t spend sufficiently, so they really are not enjoying the retirement as much as they could enjoy their retirement. [The] advice of a third party, even advisor, be it a family friend, be it whoever, who can actually help and just see things from a different perspective.
And then a very important point I’d like to make about advising. Pretend you are going to a doctor. Men particularly are nervous about going to doctors and feel that their situation is unique. We are all the same and advisors see many, many people. They are used to it. No particular circumstances of retirees are unique to them. You can bet your bottom dollar the advisor has experienced something very similar and can advise on that.
NASTASSIA ARENDSE: Patrick Sheehy, thank you.