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Is Retirement Cheaper than you Think?

Is Retirement Cheaper than you Think?

Retirement, in terms of funds, is unique to each retiree. Living comfortably during retirement, at the very least, is maintaining the standard of living that you built up pre-retirement. Ideally, retiring means buying a holiday home or moving into that holiday home, traveling, and spending your days leisurely. What many assume about retirement is that the quality of life would be a lot easier to maintain as a retiree than when working. Although this is possible, retirement does not come cheap, for sadly, more than 90% of retirees.

Retirement is relatively cheap for approximately 6% of retirees who are thoroughly prepared. This small percentage of retirees in South Africa are the ones who took the necessary steps to ensure financial independence upon retirement. The rest are either dependent on a government pension or on family members, while others are even forced to work just to make ends meet. This happens mainly because people are uninformed about the financial requirements and handle their finances blindly. Even worse, a large percentage of working people have not made provision for their retirement. This is a common trend amongst low income earners who rely solely on their pension or provident fund pay outs and neglect to make provision for their own retirement funds separate from the one provided by their employers. Often what happens is workers might leave their employer and cash out their pension or provident fund and then start all over building up a new fund with their new employer. Then by the time they retire, the funds accumulated is not sufficient to live on during retirement. Therefore, it is always a good idea to have your own retirement savings plan that is tailor made to suit you financially upon retirement.

The cost of living is another factor which impacts majorly on retirement. Due to inflation the cost of living is always on the rise. Living expenses were a lot less 20 years ago but they will be far more 20 years from now. You need to ensure that you will be financially secure enough to survive the impact of inflation 20 to 30 years from now. Therefore, retirement funds help to accumulate funds with an interest rate that beats inflation so that the lump sum can grow over time. The value of your retirement fund would determine whether or not you will retire comfortably. In order to retire with the least financial strain, your minimum retirement fund should be no less than 15 times your annual salary.

Timing is very important when it comes to preparing for retirement. The earlier you start the more rewarding retirement would be. Starting early helps grow your fund abundantly over the years. It also puts less strain on your current financial state, as you need not make a hefty monthly contribution to your fund because you have so many years ahead of you.

Your level of debt is also a determining factor of how you will cope during retirement. Using a large percentage of your funds to settle debt upon retirement could cause financial difficulty later on. The general idea of a retirement fund is that a third of the investment can be taken out as a lump sum while the rest of the capital is used as part of your income throughout the years. You should settle as much of your debt before retirement so that you can enjoy a fruitful retirement.

Retirement is not what you think it might be but how you handle your finances prior to it. What you sow while working is what you shall reap during retirement. The smarter you work with your money, the cheaper retirement would be.

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