With people working longer, living longer, and retiring later, financial decisions in your 60s remain crucial. However, this decade offers little room for error. Thoughtful planning is essential to avoid costly mistakes that could impact your retirement security. Be mindful of these common pitfalls to ensure a stable and well-prepared financial future in this critical stage of life.
Not having a long-term care plan
Many retirees underestimate healthcare costs, leading to insufficient financial planning. Those in their 60s who enjoy good health often overestimate their well-being, failing to prepare for potential medical challenges. Advances in medical science have extended lifespans, often allowing individuals to live with chronic illnesses, yet many retirement plans fail to account for the financial implications.
The 2019 Just Retirement Insights survey highlighted this concern, revealing that 43% of participants had not considered the possibility of dementia or Alzheimer’s at all. Meanwhile, 30% had thought about it but had made no financial preparations. Only 27% had extensively considered the issue and put comprehensive plans in place. Given the rising costs of long-term care, proactive healthcare planning is essential to ensure financial security in later years.
Every pre-retiree should develop a long-term care plan to prepare for the possibility of needing full-time care. Failing to plan adequately can lead to financial strain, placing an unnecessary burden on loved ones and leaving you vulnerable during a particularly challenging stage of life.
If you haven’t already done so, consider various care options, including frail care, home care, assisted living, or living with an adult child. Research the costs associated with each and assess how well your current budget can accommodate these expenses. In South Africa, frail care costs vary widely, ranging from approximately R25,000 per month for basic services to as much as R75,000 per month for premium facilities.
Beyond frail care costs, your long-term care plan should also account for ongoing healthcare expenses. These may include continued medical aid and gap cover, over-the-counter medication, mobility aids such as wheelchairs and walkers, hearing and visual aids, and other adaptive medical appliances. Thoughtful planning will ensure financial security and peace of mind should your healthcare needs change in the future.
While you may feel fit and healthy in your sixties, it is safer to err on the side of caution develop a long-term care plan in case you need it later on. Importantly, share the details of the plan with your adult children and loved ones to give them peace of mind that you have a workable plan in place.
Retiring too soon
Many people aspire to retire early but often fail to consider the long-term financial implications. While retiring at 55 may seem appealing, few individuals are truly in a position to do so. According to the Just Retirement Insights survey, 44% of respondents had not done any retirement budgeting, 53% had not calculated their annual retirement income needs, and only 20% felt confident that they had enough savings to sustain them until age 100.
A common industry guideline suggests that for every R1 million in retirement savings, an income of R4,000 per month is sustainable. However, the survey found that many retirees have unrealistic expectations, believing that R1 million in savings would generate R8,000 per month—double the sustainable amount. In addition to overestimating their retirement income, women, in particular, tend to underestimate their longevity. The research shows that 75% of women will live to age 80, with 10% reaching 100. Among men, 75% can expect to live to 75, while 10% may reach 95.
For a woman planning to retire at 55, there is a 75% chance she will need to fund at least 20 years of retirement and a 10% chance she will need to sustain her income for 45 years. To put this into perspective, if she started working at 25 and accumulated 30 years’ worth of income, that capital might need to last for up to 45 years in retirement.
While retirement annuities allow retirement from age 55 and pension and provident funds typically have formal retirement ages of 60 to 65, careful planning is essential before making any decisions. An experienced financial adviser can assess your investments, determine the most appropriate risk exposure for your time horizon, and conduct detailed post-retirement cashflow modelling. This process will help you understand exactly how long your capital will last based on your income needs, ensuring a financially secure and well-planned retirement.
Holding onto the family home for sentimental reasons
Many retirees choose to hold on to the family home for sentimental reasons, even after their adult children have established their own households. However, if your long-term plan is to downscale to a more manageable property, it is worth considering doing so sooner rather than later.
Firstly, maintaining a larger home can become an unnecessary financial burden in your pre-retirement years. The funds spent on upkeep, rates, and services could be better allocated towards securing long-term care or strengthening your retirement capital. Secondly, if you experience financial strain in retirement, you may be forced to sell your property under unfavourable market conditions, potentially reducing the capital you could realise from the sale.
Beyond general maintenance, other costs of retaining a large home include higher municipal rates, increased energy consumption, home security expenses, domestic and garden services, and ongoing repairs. When structuring your retirement plan, ask your financial adviser to prepare comparative scenarios showing the financial impact of selling your home in your sixties versus your eighties. This analysis provides valuable insights, helping you make an informed decision about the best time to downscale for financial security and peace of mind.
Giving away your assets too soon
If you are financially secure in retirement and plan to leave a legacy for your children, you may consider distributing part of their inheritance while you are still alive. Given the rising cost of living and economic pressures, this approach has become increasingly common although it does carry inherent risks that should not be overlooked.
Without a carefully structured retirement plan that accounts for market fluctuations and longevity risks, giving away assets too soon could negatively impact your financial security. If you are asset-rich but cash-poor, providing financial support to an adult child may force you to sell investments or properties earlier than planned. This could lead to liquidity challenges and unintended tax consequences, such as capital gains tax (CGT) liabilities.
Before gifting or lending assets, consult your financial adviser to develop a comprehensive estate plan. This will help you assess the liquidity in your estate, understand the tax and CGT implications of disposing of assets, and ensure you are not compromising your long-term financial stability. Your adviser can model different scenarios to illustrate the impact of distributing assets during your lifetime versus through your estate. Armed with this information, you will be better positioned to make informed decisions that balance your financial security with your legacy goals.
Have a wonderful day.
Sue
