You are Here > Home > My Retirement > The effects of delaying your retirement

The effects of delaying your retirement

Jun 9, 2021

What if you could change your retirement by working just one more year? André Wentzel, Head Client Solutions Savings at Sanlam, explains how delaying your retirement by one, three or five years could fundamentally change your savings and enable a better quality of life in retirement.

The effects of delaying your retirementA lot can happen in a year.

Just one year ago, countries all over the world were going into hard lockdown due to Covid-19. Even before the pandemic, the average South African was struggling to manage their finances and had a dismal track record of saving.

The pandemic has heightened the challenging financial times with many struggling to make ends meet, let alone being able to prioritise long-term savings goals such as retirement. You change every year. So should your financial plan.

A year later, as South Africa prepares for the third wave, many are still recovering from the devastating financial impact of the pandemic.

This has resulted in South Africans tapping into their retirement savings and investments prematurely to make ends meet. This can have a significant detrimental impact on the income one can expect to receive in retirement.

While the average age of retirement in SA was officially reduced to 60 in 1995, most people are not able to retire comfortably at that age based on the amount that they have saved for their retirement.

The traditional concept of retirement was adopted 130 years ago, in a different environment, for a different generation. Since then, the average life expectancy has increased drastically and with many people living well past their retirement age, it is worth considering the impact that delaying your retirement can have on your financial situation in retirement.

Financial impact of delaying your retirement

Delaying your retirement by one, three or five years could fundamentally change your retirement savings and enable a better quality of life once you do stop working.

Firstly, let’s consider someone who started saving 20% of their income at age 25 and is on track to retire at age 60 and maintain their standard of living.

Retiring either a year earlier or a year later can have a 7%-8% impact on their income. If that’s increased to 3 years, you could expect to receive 20% less income if you retire early but nearly 24% more income if you retire later.

If this person were to retire at age 55 they would receive 30% less and 42% more retiring at 65. So, retiring at 65 instead of 55 (which is the earliest you could access your savings) means your income in retirement is more than double.

Similarly, retiring later could help improve you circumstances if you fall behind, whether it’s because you starting saving later or because you had to pause your contributions or tap into your savings due to circumstance like we are experiencing with the pandemic.

The rough rule of thumb is that for every year you paused your savings or delayed starting, you can make up for it by retiring one year later.

For example, a 60-year-old retiree who saved without interruption from age 25 can expect about the same income as a 70-year-old retiree who started at 35 or who started earlier but who tapped into and depleted their savings at 35.

Of course, not everyone may be in the position to be able to choose to continue their employment beyond retirement age.

Supplement your income in retirement

Many people are also choosing “semi-retirement” ‒ continuing to work part-time after their official retirement to supplement their income.

Your greatest asset is your ability to earn. Even earning a relatively small salary from part-time work can make a significant difference in the long term and help to stretch your retirement savings.

Some of the ways to supplement your income in retirement and ensure the longevity of your retirement savings include:

  • Consulting and part-time work: Several studies show that older, experienced employees can increase productivity and employment opportunities for a company. Consider semi-retirement which will allow you to consult and do part-time work to bring in extra income.
  • Local services: If you are retired, you have the option of helping those around you. Hobbies can also help you earn extra income, such as walking the dogs in your neighborhood, running errands or house-sitting.

Whether or not you consider delaying your retirement or supplementing your post-retirement income, it is important to have a plan in place.

In a recent Brand Atlas survey of middle-income earners in South Africa, 41% believe their retirement plans are “a bit vague” and only 1% have a well thought-through plan which is being carefully executed.

With the help of a financial adviser, you can put a plan in place that suits your lifestyle and current financial situation.

This post was based on a press release issued on behalf of Sanlam.

1 Comment

  1. Very good advise.

    Reply

Submit a Comment

Your email address will not be published. Required fields are marked *

Maya Fisher-French author of Money Questions Answered

Previous Articles

E-cigarettes and your life insurance policy

Clyde Parsons, Actuarial Executive at BrightRock, explains why regular users of e-cigarettes are charged smoker rates by life insurers, and what you can do about it. For decades now, we’ve known that smoking is bad for our health – the research has conclusively shown...

Listen: Creating a passive income with shares

In this podcast, Maya (@mayaonmoney) chats to money blogger Brett (@ETFenthusiast) on how blogging helps keep him on track financially, his plans in working towards financial freedom, and which investments he is using to provide a passive income in the future.

You don’t need a lot of money to start investing

Many people feel they need to have a lot of money in order to start investing. In fact, the opposite is true. Investing small amounts every month actually provides the best risk-return scenario when it comes to longer-term investing. Investing via a monthly debit...

Beware the unpaid CGT shock

Many taxpayers may not be aware that the payment of capital gains tax (CGT) is due before you receive your investment tax certificates. This affects existing provisional taxpayers as well as any resident taxpayer who disposes of an asset and earns a capital gain or...

Teach your kids the value of money

The best financial legacy you can leave your children is to teach them the value of money - how to save it as well as how to spend it, says Stephen Katzenellenbogen, Senior Executive and Wealth Manager at NFB Wealth Management. You don’t have to wait until you die to...

How will the recent looting affect the rand?

Bianca Botes, Director at Foreign Exchange Specialists Citadel Global, shares her insights on the recent protests and looting, and what it might mean for the value of the rand. One cannot deny the chaos that has ensued since the recent incarceration of former South...

Retirement planning is not a once-off event

Jaco Prinsloo, Wealth Manager at PPS Wealth Advisory, has some sensible advice around retirement planning. As a wealth manager, I have observed that there are two typical clients. Some dread retirement, while others look forward to it. Those who dread it are the ones...

Listen: It’s tax time: here’s what you need to know

Tax filing season opened on 1 July, and non-provisional taxpayers have until 23 November to file their returns. Some people look forward to tax season because they can get a rebate, but for many of us it can feel a bit overwhelming. A particular hot topic this year is...

Tips for expats to get tax ready

Tanya Tosen, Master Mobility Specialist at Tax Consulting SA, has some tips for expats to make sure they have all their ducks in a row when it's time to file their tax return. Adding to the challenges of 2020, the South African Revenue Services (SARS) announced that...

Make the right choices from the start

The great thing about getting your first paycheque is that you have the opportunity to do the right things before the bad habits kick in. The day that first paycheque hits your bank account you feel like you have finally arrived. But how you manage that money will...

Pin It on Pinterest

Share This