Your parents may have been right about a lot of things: the importance of getting a good education; of eating your broccoli; and that good manners go a long way. Yet when it comes to planning for retirement, it’s not a good idea to take to heart everything that mom and dad said or did.
“Even if your parents invested wisely and are now enjoying a comfortable retirement, the retirement landscape has changed over the years and with it, so should your investment approach,” says financial adviser at Consult by Momentum, Johan Werth, who features in money show Geldhelde (DSTV channel 147).
By that same token, says Werth, your parents are human and likely to have made a couple of mistakes along the way. “Replicating these same mistakes could end up costing you later in life. However, the good news is that there’s time to course-correct and set yourself up for a comfortable retirement.”
Werth shares those typical sayings that you’ve no doubt heard mom or dad mutter at some or other point, and why – when it comes to your retirement – you can safely ignore them.
“Back in my day…”
Back in the day, mom or dad could diligently save 15% of their income throughout their working life in a defined benefit (DB) fund and retire at age 60 with enough money to comfortably live out the rest of their time on earth. But we’re not living in their day.
“DB retirement funds – popular a few decades ago – provided specified payouts in retirement, with investment choice and performance not affecting these values. These have since shifted to defined contribution (DC) vehicles, with more agency – and therefore responsibility – falling to the investor, in ensuring that their returns outperform inflation.
“This means that investors need to play a far more active role in their portfolios and engage an experienced financial adviser, who will help them navigate a fast-changing landscape.”
Also consider that thanks to medical advancements and ease of access to the latest health data, people are living longer – which means that they will need more savings to see them through their retirement.
“Many of us are not in a position to increase our retirement savings beyond 15% of our monthly income, says Werth. The solution? “Try to delay your retirement for as long as possible and consider supplementing your income with a ‘side hustle’ or alternative revenue stream, to help bolster your retirement savings,” he advises.
“Act your age!”
While this might sound wise (albeit rather scolding) coming from mom or dad, it’s not always the best idea to ‘act your age’ if it entails making the very mistakes that are often associated with your age group.
“For example, in your 20s or 30s, many people look at planning a wedding or starting a family and so direct the bulk of their funds towards these milestones. We also find that this age group typically prioritises everything else except retirement – such as luxury vehicles and international travel – but these savings shouldn’t be postponed or neglected.”
Those who fall within the 25 – 35 age category tend to switch jobs more frequently, adds Werth, and cash in their retirement savings. “Before you do this, consult a financial adviser who can do the necessary calculations around the real cost of cashing out your savings. There are often huge taxes involved with dipping into this pot prematurely – and the setback to your retirement plans is often not worth it.”
If you’re over the age of 40, you should be measuring your progress against your financial goals far more frequently than in your 20s or 30s, Werth advises. “Around the age of 45 – or 10-15 years before retirement – it’s a good idea to revisit your risk tolerance and ensure that your portfolio is well-diversified. Always work with a qualified financial adviser who can help you understand the various risks in the market at any given time.”
As you near retirement, now is not the time to be taking on new debt or looking at high-risk investment opportunities. “Here is where you need to reduce your expenses, increase your contributions and preserve as much as possible for your looming retirement.”
“All good things come to those who wait”
Well, no – not when it comes to making a financial plan or getting started on your retirement savings. “This is something we should never procrastinate on,” says Werth.
But your parents were right about one thing – money doesn’t grow on trees. “If you don’t take ownership of your finances now, there’s no miracle that will happen when you retire at age 65.
“It’s time to get real about financial advice, and play an active role in planning, saving, and preserving our funds towards our later years.”
