Late retirement is the ninth part in our 10-part series on how to structure your life-time finances.
Retirement may be the time you can finally put your feet up and do all those things that you have dreamed of in recent years but it is definitely not time to put your money on holiday as well.
You have spent most of your life building your capital. In the years ahead you will be spending it.
Your capital will have to be nurtured. This is particularly so if high inflation continues and inflation rates of eight or nine percent are still high.
Your two biggest problems as you go into your retirement years are a falling income and failing health.
You need to constantly review your position to ensure that you can constantly adjust your plans to meet your needs.
Nurturing Your Capital:
Nurturing your capital is not spreading it out to ensure that you have regular meals throughout your retirement.
It means protecting yourself against the unscrupulous, making sure that some of your capital continues to grow to take care of inflation, taking care with budgets and adjusting your budget to take care of changing needs.
The extremely high inflation of the past and low retirement savings combined in a nightmare scenario for many people, tempting them into very unwise deals in the hope of increasing their wealth. Many elderly people not only ventured into dicey schemes like Masterbond and FundsTrust, but put all their available resources into the products, leaving them destitute when the schemes collapsed in short order.
Older people unfortunately are the target of the financial services tricksters, who offer star dust but leave you with nothing.
Before deciding to put your money into any too-good-to-be-true venture first consider what position you would be in if you lost all your money. The higher the return offered the greater the potential risk.
Although this is not a guarantee, preferably stick to names of institutions you know well. Use financial advisers with a reputation for fair dealing.
Preferably involve one of your heirs as well. This has a two-fold purpose of an extra pair of eyes and they then know what is happening in your estate.
Many people also place themselves in financial difficulties by not scaling down in their years of retirement.
For example they continue to drive luxury motor vehicles even though their motor vehicle allowance fell away on the last day of work and do you really need two motor vehicles after you retire?
Another area to scale down is housing. Keeping a four-bedroomed house for the 10 days a year when the children and grandchildren come on holiday is not very sensible. Rather sell your home and rent the one up the road for those few days it will work out far cheaper.
Many people like to hold onto their homes because that is where their memories are, but those fond memories could turn into nightmares.
A lot of capital is often tied up in a home which could be used to provide a better income stream.
In looking to scale down also take account of any need to move into a retirement village or home.
Estate Planning:
Although no one likes to think about dying, the event is coming closer and you need to ensure all your affairs are in order. Circumstances may require alterations to your will and to other estate plans you may have.
For example if you are wealthy you should consider making gifts to your heirs to reduce eventual estate duty.
You are allowed to make annual donations of up to R25 000 without paying donations tax. You can also use donations to transfer assets to a trust.
Being the target of cheats is one of the reasons why it is essential to have your affairs in order when you retire.
Your will should be up dated and you should draw up a balance sheet of all your assets and liabilities.
You also need to prepare yourself for mental frailty. It is at this point that many people fall prey to con artists.
It is a difficult issue to deal with and if you feel that there is a chance that you could become mentally incapacitated, you should take steps to ensure that you will be cared for in the years ahead.
There are various financial instruments that you can use to protect yourself. Probably one of the best is a trust which can be designed to ensure an income flow while placing the responsibility of the control of your estate in the hands of trusted people.
If you are not very wealthy you can sign a power of attorney giving one or more people the right to control your estate within parameters you set.
Another tool is a usufruct which will allow you to benefit from the proceeds of an asset until you die but the asset itself is transferred into the name of someone else.
The essential thing is to recognise early that you may have a mental frailty problem.
Health:
You are unlikely to spend more at any time of your life on health than in your retirement years. And as you get older the potential of spending more will increase, often dramatically.
Apart from potential deteriorating health, medical inflation is running way ahead of ordinary inflation.
Buy and retain as much health cover as you can afford early on. Put aside additional savings to meet future health needs.
You may also need money to cover the costs of a frail care centre if you become either physically or mentally frail.
This series has been prepared by Personal Finance in conjunction with Old Mutual