By: Natasha Archary
Lise-Mari Crafford, Head of ManCo Distribution at Allan Gray, joins Kaya Biz to share tips on how to plan for your retirement and make your money last longer.
Statistically, women struggle to retire as early and as securely as men, with gender disparities regarding income extending far beyond the gender pay gap.
Women simply cannot afford to retire as early or as comfortably as men, and one of the factors is that women tend to live longer than men.
With a lower income and longer life expectancy, it means that women need to account for living expenses and be unlikely to make sufficient savings for longevity risk.
This means that women are not earning enough, and unable to put away enough to secure their retirement.
“When you need your pension money to work for you, but if investors haven’t saved enough in their lifetime, the risk is that you can run out of money in your retirement phase.
Retirement is obviously that part in you life where you start to receive an income from the money you saved in your retirement fund.
If you’ve got good health and you could work longer, delaying retirement could be a good consideration. This may however be difficult because quite a lot of South African companies do implement a retirement age of around 60-years.”
In order to plan your retirement and make your money last longer, Lise-Mari advises South Africans to get their finances together before they retire so they can live a debt-free life in retirement.
Four essential elements to be debt-free by retirement
A home loan shouldn’t be an ATM
By the age of 45, you have only fifteen years left to achieve the goal of being debt-free by retirement. Individuals buying a home at the age of 45 should ensure that the loan term does not exceed 15 years in order to achieve the goal of being debt-free at 60.
Homeowners with an existing bond should not be drawing down capital from an access bond, unless there is a plan in place to settle this debt in a 10-year period. This is particularly pivotal if you are looking to use this capital to pay for home renovations or your children’s education.
Eliminate short-term debt
Short-term debt could derail your retirement planning. Paying the debt off is highly important.
Draw up a list of all your short-term debt and calculate the date the last debt will be paid off. If you find that your debts will not be paid in time for retirement, you should make significant lifestyle changes now in order to accelerate debt repayments.
Be realistic about university fees
Most breadwinners will be sending their children to university 15 years before retiring. If there are no savings and investments set aside for tertiary education, don’t be tempted to make additional debt. Be realistic about affordability because children should not have to carry the burden of financially supporting their parents during retirement.
Ideally your children could apply for bursaries, apply for student loans or turn to family for financial assistance. Of course, the main breadwinner could assist in paying off the interest on these loans, but the child should take full responsibility for the student debt when they start working.
Don’t use pension money to pay off debt
It may be tempting to cash in investments that are growing at 10 to 12% per year to pay off debt with higher interest rates. However, this will result in the individuals missing out on the power of compound growth on the retirement investments.
You may be tempted to cash in R100 000 of your investments to repay short-term debt. If you rather focused on paying off the debt by budgeting and cutting back on your lifestyle, you could probably pay off the debts within five years with a payment of R2 900 per month, or by using your bonuses and tax rebates to pay it off even faster.
Listen to the conversation on Kaya Biz with Gugulethu Mfuphi:
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