Securing your future: Pre-retirement planning considerations

A retired couple enjoying a day out at the beach. Picture: Pexels

A retired couple enjoying a day out at the beach. Picture: Pexels

Published Jun 1, 2023


By Bonolo Mosoane

This is the first article in a series on planning for retirement, focusing on the different phases of the journey. Over the course of the series, we will also look at the transition phase, the active phase, the passive phase and the late retirement phase. Just SA is a retirement income and life annuity specialist that partners with best-of-breed independent asset managers and administrators to provide an enhanced value proposition to meet the different needs of South African retirees.

Retirement is a significant milestone that requires careful planning and preparation. If you are one of the many South Africans who will retire in the next 5–10 years, it is crucial to start thinking about your goals for your golden years and taking proactive steps to ensure a financially secure future.

Assess your financial situation

The first step in preparing for retirement is to evaluate your current financial situation, taking your spouse or partner and any dependents into consideration. Take a thorough look at your savings, investments, and assets and consider consulting a financial adviser. An adviser will help you evaluate your financial health and choose a suitable solution that will provide an income in retirement to support your desired lifestyle.

Develop a retirement budget

Your needs and wants in retirement may differ from your current needs and wants, and this will affect your budget. Creating a budget that is tailored to your retirement needs is a good way to get an idea of how much income you will need. Identify your anticipated retirement expenses, categorising them into essential and discretionary expenses. Essential expenses typically include housing, healthcare, food, transportation and utilities, while discretionary expenses are generally more flexible and may include holidays, entertainment, socialising, hobbies and other leisure activities.

Once you have identified your expenses, estimate their costs and factor in inflation over time. Remember that people generally underestimate their life expectancy. Retirement can span several decades, so it is crucial to plan for long-term financial stability.

Get to know retirement income sources

The South African old–age grant is currently R2 080 per month for individuals aged 60+ and R2 100 per month for those over 75 years old, which is not nearly enough for the average South African retiree.

These figures show why it is important to have your own savings – either through your employer’s pension or provident fund or through a private retirement annuity that you contribute to during your working years. When you retire from any of these funds, you are legally required to purchase either a living annuity or a life annuity with at least two-thirds of the capital you accumulated in your working years. The greater the sum you have accumulated, the higher the post-retirement income you will be able to enjoy.

Choosing the right post–retirement product will also make a difference to your outcome in retirement. A living annuity is an option that allows you to choose the annual income amount within certain limits, usually as a percentage of the total investment value. There is a risk here as the income will fluctuate based on the markets. A life annuity is another option. It provides a guaranteed stream of income for your lifetime, no matter what, and a blended annuity is a combination of both. A blended annuity provides some guaranteed and flexible income or the “best of both worlds”.

Picture the future

It is an excellent exercise to think about what you want to achieve in retirement and how you can make your money work for you in the most sustainable way so that you can enjoy peace of mind. Where might you like to live, which hobbies would you like to pursue, or which meaningful experiences would you like to have? These are all questions to consider.

Understand what is most important to you – certainty or flexibility? The right answer depends on your preferences. Thinking about these two apparent opposites will help you decide which product option is best suited to your future and the income needed to support your wants and needs.

A guaranteed income from a life annuity may be the best option for you, or you may prefer to take more investment risk through a living annuity. A financial adviser will be able to help you choose the right annuity product that gives you the best possible retirement income based on your individual circumstances.

Achieving a comfortable retirement requires careful consideration, financial planning, and informed decision-making. And the earlier you prepare, the better.

Bonolo Mosoane is Business Development Manager of Just Retirement Life (South Africa); [email protected]


* The views expressed do not necessarily reflect the views of IOL or its sister titles