Offers of early retirement run counter to work-for-longer trend
Define what retirement looks like for you and build your plan
Plan carefully if you go on pension early as the concept of retirement, or how retirement should be, has changed for millennials and baby boomers.
The concept of retirement, or how retirement should be, has changed for millennials as well as for baby boomers. Back in the day, early retirement meant more time to spend with the family, especially grandchildren, new business ventures or pursuing your passions.
But as medicine and science tell us we will live longer, it is no surprise that some baby boomers are opting to delay their retirement to build up more capital to maintain their standard of living once they retire.
Boomers who continue working reduced hours or offer to consult, earn additional income that benefits their retirement bucket and contributes positively to their self-worth and identity.
However, Covid-19 has led some businesses to offer individuals over the age of 55 involuntarily early retirement which dampens plans to work longer.
The reality in South Africa is that our low savings culture means insufficient retirement savings which has forced a bulk of baby boomers to continue working.
But now health concerns and the risk of infection may steer these individuals to take early retirement, even if they do not want to.
Unfortunately, this is happening during an economic crisis that has impacted the performance of investments negatively.
Some employers have reduced or placed retirement contributions on hold, to assist employees whose pay has been cut. The lower contributions will impact the growth of the retirement savings of those reaching retirement.
Whether early retirement was taken involuntarily or voluntarily, there are important factors to consider.
You have to look at the retirement package on offer and determine the benefits you will forgo by retiring early. Speak to your employer’s employee benefits consultant or a financial adviser, so that you know what to expect and to help you to make an informed decision.
Early retirement impacts your financial plan in two ways – you will contribute for a shorter period and you will tap into your retirement savings before the expected time, consequently decreasing the future growth on your investments.
If you have other savings that you can live on in the meanwhile, rather use those savings than tapping into your retirement bucket. The longer you delay tapping into your retirement savings the better.
Review your household budget and make allowances for emergencies and debt management. If you were planning a home renovation project or to upgrade your car, consider putting these plans on hold.
Health care is one of the biggest expenses that face retirees, so ensure that you have a healthcare plan that will fit your needs. As you will no longer be enjoying group life and disability benefits, you will also have to consider whether you need additional risk cover.
If you are over the age of 60 and your pension is low and your spouse is also not a high earner, you may be eligible for the Sassa grant that can supplement your income. You have to pass the means test to qualify, which takes into account both your income and your assets.
It is quite rare that both you and your partner will retire at the same time. If your partner has not yet retired but is close to retiring, encourage him or her to discuss with his or her employer a phased approach to their retirement to delay the loss of income to your household.
If you are considering re-entering the job market, you can increase your chances by showcasing your technical knowledge, flexibility and your eagerness to learn. If you do not have qualifications, remember you have years of experience in your industry.
Understandably, the fear of returning to work and exposing yourself to the virus may shift your attitude regarding working on-site.
Reach out to your circle of community and employer to get support and an outlet to share your concerns. Consider taking online courses to increase your skills in the systems that you use, in order to increase your efficiency in working remotely.
We are all uncertain about what the future may hold, but we must choose to control what is in our hands. Define for yourself what retirement should look like for you and build your plan.
* Kunene is an associate financial planner at BDO Wealth Advisers and holds the Certified Financial Planner accreditation