THE FIVE GOLDEN YEARS BEFORE RETIREMENT

This is the time to buckle down and tackle the last stretch tactically, practically, and realistically.

What is supposed to be one of the most exciting times in one’s life often turns out to be the most traumatic. This does not have to be the case. Hopefully, I will be able to provide some guidance to make retirement a highlight and disperse the thought that retirement is some kind of penalty.

Before I delve into the nitty gritty, I want to state that planning for retirement should start the day you receive your first pay cheque. The reality is that very few people achieve this. Individuals are also prone to try and max out returns at some point in their investment journey. For some, this works; for most, this leads to disappointment either because of investment “schemes” like MTI, Bluezone, Dividend Investments and many more where investment were wiped out.

Unrealistic expectations are often destructors of wealth, and we do not have to look too far back in history to realise this. The crypto space is riddled with schemes and disappointments. All of us either know someone close to us who succumbed to major investment losses or we ourselves fell victim to our own greed…

Irrespective of whether or not you had a bad experience with investments and your capital is less than what you had hoped for, the five years prior to retirement are not the time to try and regain past losses by chasing unrealistic promises and returns. This is the time to buckle down and tackle the last stretch of your golden years tactically, practically, and realistically.

By following the steps, I lay out below, you should enter retirement in five years with much more confidence and hopefully actually look forward to it! The very least that you will get out of this is that you will have a much more realistic idea of how much retirement income you will be able to earn when you retire in five years.

Step 1: Plan and project, kill debt

Consider the investment value that you have accumulated to date. Investments must include all assets of value that can either be sold or that derive an income. Include jewellery (you will be surprised by the jewellery value of some individuals), art, car collections, cash, and property (exclude your primary residence). Now take 5% of that value and consider that as your potential retirement income per year if you retired today.

This figure will either make you breathe easy, or you may break out in a sweat. Don’t worry; this is the start, not the end. The one certainty you have is that your retirement income in five years will be more than this projected figure.

Now sit down and cross out all your monthly contributions that cover current debt like bonds, HPs, credit cards, contributions toward retirement funds, kids spending money (and yes, some parents still subsidise their kids well into their 30s) etc. and determine a realistic retirement income requirement in five years’ time. Your main objective must be to be debt free when you retire (and even five years prior to retirement). If you have debt, implement a debt reduction plan. Allocate 50% of your monthly voluntary investments (not contributions toward retirement funds) towards reducing debt. Pay off high interest-bearing debt first.

Step 2: Maximise wealth

Maximise wealth accumulation. This is different to maximising returns. Over the last five years to retirement, you should endeavour to double the value of your investment portfolio. This can be achieved by decent returns and aggressive saving. Invest every spare cent that you can save from somewhere. Realistically a return of 11% + per year is attainable over five years. You therefore need to add approximately 3% additional investments per year to double your investment value over the five years. In total you need combined investment growth (returns + additional investments) of 14.4% per year to double your money. If you don’t double your money, it doesn’t matter. At least this strategy would provide you with the motivation to invest aggressively in those last five years.

Step 3: Consolidate

We find the majority of clients have widely diversified portfolios and way too many products. Consolidating portfolios will bring simplicity and easier management to your investment portfolio. This in turn will improve the dynamics of your investments.

Think about how you would want to retire. If you have a portfolio of investment properties think about the amount of time and money, they take versus how much they make (after tax). If that excites you and it’s a part of your portfolio you would want to keep in retirement, great! If not, start the sales process. Start fixing them up and make them marketable. Keep the one/s where the market is growing, sell those where you think the area is deteriorating.

Consolidation and simplification can be done structurally and strategically but have it completed by the time you reach retirement. In retirement you want simplicity and no hassles… It may also be time to consider using the services of a qualified professional financial planner to assist and guide you now and in retirement.

Step 4: Family discussions

First and foremost, please discuss finances with your spouse. Let them know how much money is available today and what lifestyle can be expected in retirement. Of equal importance is what will the financial position be when one of the spouses passes. Plan together. Discuss each other’s wills and wishes. Then discuss these same issues with your children and close family members. Prepare your family that your financial position will more than likely be more modest than your financial position prior to retirement.

It is important that spouses have financial and especially retirement discussions. Start planning how and where you would like to retire. If you plan to move to a retirement lifestyle village decide between ownership and life rights. Set a time/age that you would be moving to a retirement village. Discuss and decide on a strategy should either spouse require special care sometime in the future. Understand and honour each other’s wishes. Determine the cost thereof.

Be realistic in what you give your children and grandchildren. Unless you have accumulated substantial wealth prior to retirement, make your anticipated financial position clear to your children. If you have not accumulated excess wealth, do not give away wealth prior to death and make this clear to all parties. Too often we encounter situations where the impact of “giving” was underestimated leading to financial hardship where adult children cannot assist parents that become cash strapped. Generosity is humble and provides a good feeling, however, keep it realistic and modest. Remember your objective to save as much as possible in the five years approaching retirement.

Step 5: Plan you lifestyle

Deal with the most important question first: “What am I going to do when I retire?”

Most people underestimate the psychological impact of retirement. Falling into a state of depression shortly after retirement is not uncommon. It is therefore important to plan your life in retirement. Playing golf every day, is not a sustainable long-term strategy unless you become a professional golf coach…

It is important to retain your purpose in life. This purpose will change in retirement. You may no longer be the company executive that everyone reported to. It is important that you start accepting that things will change when you retire. It is of equal importance to find something that excites you and that you want to wake up to. This may be a hobby, studying, teaching people your craft, charity work, art, learning to play an instrument or anything that you are interested in. Some retires start a new career (one of my clients who was an executive became a tour guide using his German language skills), start investigating possibilities now. Get involved and lay the groundwork way before retirement.

Then, of course, you must have fun too. Plan your holidays. Reward yourself for many years of hard work. You may not have been able to embark on that world cruise during your formal working life. Do the things that will require more physical challenges first and ease into the more relaxed activities as you age. Start drawing up your wishlist now and start the financial planning process to reach each goal.

Accept the challenges of ageing and realise that you will lose some of your physical abilities and strength and the older you get the faster that will happen. Implement your exercise plan now, don’t delay. Don’t plan to run the Comrades when you are 70 (unless you are the likes of Wally Hayward), rather do it now or get it out of your mind!

Keep it realistic, have fun and enjoy your pending retirement. It always surprises me how fast five years go by… Before you know it you will be able to kick out your feet and reflect on your life and lift a glass to celebrate your past achievements. May there be many more! There is no reason to stop now…

Happy retirement!