One of the biggest dilemmas that faces any working person is dealing with the question of when it is the right time to retire. 

Retirement can be triggered by various circumstances that can range from forced retirement, voluntary retirement, and ill-health retirement. When your conditions of employment refer to a defined future retirement date, then in most cases, your retirement is known well in advance, and you can plan accordingly.

Voluntary early retirement can be brought on by a financial windfall like an inheritance or if you and your spouse managed to accumulate sufficient wealth to justify an early retirement. Ill-health retirement generally is unplanned and brought on by circumstances that are often outside of your control.

Irrespective of how and why you retire, there are common criteria that apply across the board to ensure that you enjoy your retirement. Let’s unpack some of those criteria:

1. The decision to retire

The decision to retire must be a conscious decision with a proper plan in place. The plan must not start the day that you decide you have had enough because you had a run-in with the boss, it must be a methodical plan that lays out the following:

• How much income will you need to maintain an acceptable lifestyle in your retirement? Draft a detailed budget to determine this and include future capital expenses like replacing motor vehicles and holidays. 

• What does that income relate to as far as the capital required to fund your lifestyle? Work with a suitably qualified financial planner to assist you with the planning before retirement (this process must start decades before retirement) and in retirement. The future value of money is often underestimated. R1 million today has a different value 15 years from now. Portfolio construction and suitable returns become crucial, as does tax planning.

• If it is clear that you are not going to have sufficient capital, what are your emergency re-structuring plans? What are your adjusted retirement plans?

• How are you going to stay busy in retirement? With this, I mean staying productively busy, not having a beer or champagne with your friends every day. 

2. The reason for retiring

If you would like to work beyond your retirement date, discuss the possibility of extending your term of employment with your employer well in advance. Too often we encounter situations where someone accepts that they will be able to continue working for another three or so years just to be denied it on the date of retirement.

If your employer agrees, get it in writing and adjust your employment contract if possible. The fact that someone else was granted an extension to their employment date does not automatically guarantee you the same. If your retirement date arrives three years before you anticipated it, it is both traumatic and it can lead to financial hardship. Remember, your employer has the fullest right to end your employment on the date that your employment contract stipulates.

The global trend is for people to work longer and often beyond 65 for various reasons, but mainly because people nowadays live longer. If this is your intention, make sure that your employer can accommodate you. Alternatively, you will have to look for alternative employment after your retirement date should you wish to work until later in life. You can also, of course, start your own business or hobby that generates income. 

Where retirement is due to a medical condition, it often happens that the retirement date is brought forward way earlier than the contracted retirement date. Generally, early retirement will be activated if the employee is older than 55 and the chance of recovery is very slim. Funding will be via income replacement insurance, a retirement benefit, or a combination of both. Once classified as an early retirement, the employee will, in all probability, not be able to return to work should they recover. 

Where individuals are younger than 55, the income will be replaced by their income replacement insurance (should they have cover), and they will be able to return to work should they recover sufficiently. The longer this date is before official retirement, the bigger the financial impact will be in “official” retirement. In most cases, people who are “medical boarded” are unable to work, in which case they will be prevented from working at least until they reach retirement age as a condition of their income protection rules that they hopefully had when they worked.

If you have income protection as a risk group benefit offered by your employer or via private/self-insurance, your income will be secure until the pre-determined age (normally 65). There are two points to take note of here. Firstly, the premium for the cover still needs to be paid to remain in place. This will either be covered by a premium waiver as part of the insurance. Alternatively, you will have to pay the premium to the insurer. Secondly, you will have to fund contributions towards your retirement funding during this period since your “cost to company” benefit may fall away when you retire early or if your income is funded via income replacement insurance.

In some cases, the group risk benefit does accommodate these payments through a contribution waiver benefit. If you belong to a corporate retirement scheme, make sure your scheme has these waiver benefits in place. If they don’t, you will have to fund the contributions out of your own pocket. This potential shortfall can be funded by personal insurance.

The above scenarios indicate the importance of income protection insurance, either as a group risk benefit or via private /personal insurance. Young people should not go without it … Note that there is a limit on how much you can earn in the form of income replacement policies. Insurance companies aggregate payouts to ensure that you cannot earn more than allowed while in the claim stage. Make sure you do not pay for excess cover; it will be money lost!

If you retire due to ill health, take the long-term cost of your medical condition into account when you do your budgeting. We know that medical expenses increase as you age. If you have ailments, this just escalates your medical costs.

Voluntary early retirement is on many people’s bucket lists. People in high-pressure jobs or those who hate their work often fall into this category. BBBEE, of late, is also a motivator for affected people to retire early. Irrespective of why you decide to retire early consider the following before you take the plunge:

• Make sure you can afford it. The normal calculations no longer apply. More cash will be required considering your longer period in retirement. Make sure you get the math right!

• Consider taking a six-month or one-year sabbatical. Generally, people who retire early are stressed due to work pressure, and they plainly need a break. Figure out how you are going to spend your time after your sabbatical. Starting a new career or turning a hobby into a paying hobby may be options. Play golf or bridge as often as you wish but don’t make that your only goal …

General – retirement

The following gets over-emphasised in many articles, but it does not harm to note it again:

• Cash is not a long-term investment strategy;

• Choose your fund managers/advisors well and stick with them;

• Don’t let emotions drive your investment decisions;

• Plan, budget, strategise, implement, and stick with it;

• Your retirement investment should look different from your pre-retirement growth strategy. In both scenarios, you need a decent amount of exposure to growth assets;

• Get the math right;

• Don’t ignore guaranteed life annuities – current yields are attractive;

• Make sure your will is valid, current and can be executed easily; and

• The same applies to your trust.

So, when is the right time to retire? In my humble opinion, when you are emotionally and financially ready, and you have your life in retirement figured out. Spend more time focusing on what you are retiring to rather than what you are retiring from …

Enjoy your retirement journey.