Pension Plain: Four things you must know to successfully retire in 2023

Published Apr 4, 2023


If you are retiring in 2023, you should immediately start the planning process to determine what the rest of your life will look like. Too often people who are retiring leave too little time for planning and it then becomes exceedingly difficult for them to obtain the retirement outcomes they want to achieve.

Following the four steps below can greatly enhance your retirement experience.

1. Determine your retirement destiny.

Only you can decide what your life will look like the day after you stop working from your current position. One person might feel that he or she still has so much to offer the industry he or she works in and that value will be added by continuing to work in a different capacity in the same or even in another environment.

Another person might feel that it is time to focus on other things that might be more important at that stage of his or her life. A few retirees might even decide to open their own businesses by turning a life-long hobby into a business activity while others might find the free time they have on their hands as the ideal opportunity to explore our beautiful country or even the world.

Your lifestyle after retirement decision should guide the financial decision you take in relation to your retirement savings. It might, for example, not be in your best interest to trigger a tax obligation by taking a taxable retirement benefit when your contract of your employment ends if you are going to continue to work and earn an income from your employer in another capacity for a year or two after your normal retirement date.

In such a case, it might be best to allow your retirement savings to grow tax-free in the fund until you stop working and no longer earn an income. It might also not be the best decision to use your full retirement benefit to buy an annuity if you intend to start a business or if you want to travel the world as you might need to take a tax-efficient lump sum payment from your fund at retirement to fund your business owner aspirations or your travel plans.

You must therefore take a lifestyle decision on what you want your life to look like after retirement before you take a financial decision in relation to your retirement savings that will support and not contradict your intended lifestyle choice.

2. Clean house

Firstly, ensure that all your debt is paid off, if possible, while you are still earning an income.

You want to use your retirement savings to pay for your lifestyle expenses after retirement and not for debt that you accumulated while you were working.

Secondly, draft a post-retirement budget of your income and the essential expenses, the “nice to haves” and the luxury items you want in retirement. Essential expenses are the basic necessities such as food, housing, transport and communication. Nice to haves will be quality upgrades to your basic necessities. Luxury items are those things you can live without, but that you feel you want to spoil yourself, for example travelling, entertainment and eating out on a regular basis.

The importance of other income streams that you might have, for example, rental properties, should not be ignored.

Thirdly, ensure that your will as well as your nominee forms in relation to your insurance policies are up to date. We must all ensure that we leave our financial affairs in order as a gift to those who have to deal with the grief of our loss who are spared the frustration of trying to sort out a messy financial situation after our passing. Check with your insurers if you have recently updated the nominees on all your policies as the insurers are legally obligated to make payment to the person you might have nominated 10 years ago to the exclusion of those closest to you today.

Fourthly, ensure that structures are in place to provide for future medical expenses and increases. If you are a member of a medical scheme, find out if you have the option to continue your membership after retirement, if your employer will subsidise your medical scheme contributions after retirement and what the most suitable option is after retirement. Too many retirees decide to down scale their medical scheme options to save on monthly contributions without taking the possible financial implications when a medical expense is incurred in future into account.

3. Educate yourself.

You should know and understand the financial options you have at retirement. You should gain information on the options you have in terms of the rules of your retirement fund and how those options can complement your lifestyle choices.

Understand the investment options you will have at retirement; what the risks and benefits are of the different annuity options you will have, and which ones are most suitable for your lifestyle decisions. Investigate the short-, medium- and long-term investment options you will have outside the retirement fund net in relation to any lump sum retirement benefit you decide to take as you will carry the investment risk and tax obligation in relation to this investment.

4. Ask for help to structure your retirement plan.

After educating yourself, you will in all probability still need the help of experts. Help is available, but you must ask for it. Very few of us are experts in the field of financial planning and especially in relation to retirement planning. Despite this, a lot of us want to save money by avoiding paying for the services of a good financial advisor and/or tax advisor without taking the cost of not having a well-researched retirement plan in place into account.

On average, you will have better long-term retirement outcomes by spending R50 000 on expert retirement planning advice and having R950 000 to invest than having R1 000 000 to invest without any retirement or investment plan in place. The money spent on expert advice will be insignificant compared to the irreparable future investment and tax losses you will face due to inadequate financial planning at retirement.

In the world of retirement planning the old rule of “measure twice, cut once” is quite relevant. You should spend at least twice the amount of time structuring (measuring) your retirement plan than the time you spend implementing (cutting) your retirement plan to come close to the retirement outcomes you want.

Ladouce is a pension fund lawyer and the author of Pensions for Palookas