Planning Perspectives with Palesa Tlholoe

POST–RETIREMENT LIVING EXPENSES

THE start of retirement living is often assumed as the time when all challenges cease as you start receiving an income from your funds. However, myths vary from thinking that your monthly expenses will reduce, mortgages and other debts will be paid off, there will be no more expenses, and therefore, there's no need to worry about planning.

This is not necessarily the case! If anything, post-retirement living requires even more planning, attention to detail, and prudence because the ability to earn more than what you previously made no longer exists. Here are some of the realities that exist and should be considered when planning for retirement.

Risk vs return

If you are in the process of retiring and therefore buying a living annuity, life annuity, or a voluntary investment with your retirement funds, you need to assess your level of risk. Your risk ability and appetite might have reduced drastically, meaning there are certain types of investments you need to avoid due to their high risk.

The opposite of risk is opportunity (return or growth). While it's essential to consider your risk tolerance, you still want decent growth in your investments post-retirement because the funds may need to last you for another 30 years. Some exposure to riskier assets such as equities presents an opportunity to grow your investments.

Professional investment advice becomes an absolute must, and this must happen regularly, at least once per year. On the other hand, if you have chosen to go with a life annuity, your income and any applicable increases are predetermined in advance, which means you carry little to no market risk in that investment.

Monthly expenses

Your monthly expenses may be higher than expected. For instance:

● Your medical aid may be higher after retiring because you no longer have the subsidy you previously had while still employed. As a result, you may need to find a cheaper alternative. But remember, there may be waiting periods when changing providers if you have pre-existing medical conditions.

● Your out-of-pocket medical expenses may also be higher as you get older and need more medical attention. You can accommodate those additional expenses in your budget by putting the funds in a separate account (for instance, via a debit order into a money market account).

● Levies, rates, and taxes for property owners can be an unbearable cost, as they keep going up. An alternative is to move into a property that does not attract these fees if your budget cannot accommodate these expenses. But remember there are costs to downscaling, including capital gains tax, estate agent's fees and transfer duty if you purchase another property.

● Inflation is inevitable! And there's nowhere to hide from it. The only way to circumvent this issue is to choose an annuity that increases in line with inflation yearly.

Applicable taxes

Tax is an expense that follows us even post-retirement.

The only silver lining is that tax thresholds are higher from age 65 at R141 250 vs R91 250, and they get even higher by age 75 at R157 900. This means if your income is below these values, you won’t need to pay tax.

Palesa Tlholoe, CFP, is Co-Founder and a director at Imvelo Wealth