By Steven Nathan of 10X Investments
If you are like most people, you’ve probably never stopped thinking about your finances, whether it’s making ends meet, managing your debt, or funding your children’s education. And once all that is sorted, the worry starts about the size of your retirement fund, and what lifestyle it will afford you.
If you’ve saved adequately, or live frugally, then you may be able to carry on as before. But statistics show that the average persons’ retirement fund replaces only 30% of their final income, half the minimum recommended rate. So there is good reason to worry.
But there’s no point stewing in regret that you didn’t save more; rather focus on how can still improve your situation. Perhaps you can delay your retirement or supplement your pension with part-time work. There are also ways to make your savings go further, with sensible investment decisions and reducing your living expenses to fit your means.
The last point begs two questions. First, what are your “means”? This is not about the value of your savings, but rather what sustainable income they will afford you.
The answer depends on your personal circumstances (such as your age and marital status), your preferred retirement product, and how you invest your money (if applicable). Consult a financial adviser to find your number or use a retirement calculator, such as the one on 10X Investment’s website: 10x.co.za/calculators
Second, where can you cut back? If you don’t know already, now is the time to learn about your spending habits, ideally by tracking your costs over a couple of years, to also capture irregular outlays.
Invariably, your home is your biggest expense. For many, the only way to live cheaper is to downscale.
Most people have a sense of their property’s value, but few know the full cost of it. For a start, don’t believe that living bond-free means living ‘for free’. You are still incurring the opportunity cost of the equity tied up in your home. (“Equity” is what you would realise on selling, after settling your bond, sales commissions, moving costs and any capital gains tax.)
Your opportunity cost is the return available on other investments. On R3 million of equity, for example, you are still incurring rent of over R200,000 p.a., because you could also invest that money in a fixed deposit earning, say, 7% pa.
There are many other costs that depend, in part, on the size, value and location of your property: rates, levies/security, insurance, upkeep, electricity and water usage, garden expenses, to name a few.
Emotionally, moving is tough, because it means leaving the family home and all the associated memories. Invariably, it marks the apex in your life’s journey.
Yet it is also liberating to shed the burden of financing and maintaining a large home. The sooner you embrace this new freedom, the more you will preserve your savings, and the more secure your retirement will be.
Steven Nathan is founder and chief executive officer of 10X Investments, the disruptive asset manager