The 7 habits of financially healthy retirees

Sanlam has provided an infographic on the seven habits of financially healthy retirees. How do you measure up?

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What to consider and how to invest when you retire

Although every respective retiree is in a unique position as far as his retirement is concerned that should be properly analysed at retirement before taking any investment decisions, you should go through the following steps, preferably with the assistance of an expert:

1. Determine the monthly cash flow surplus or shortfall of your household, before you consider how to invest your available capital. This requires the following:
   1. Prepare a detailed monthly budget of your normal cost of living and provide for any other exceptional or irregular costs such as known repairs and maintenance to your residence, your holiday house, motor vehicles, machinery and equipment, holidays and medical expenses that you may have to carry over and above what is covered by your medical aid.
   2. Determine your expected income from your pension fund or funds, as well as your wife's pension, if relevant, after providing for income tax.
   3. The difference between 1.a) and 1.b) will reflect either a shortfall or a surplus.
   4. If the difference per 1.c) is a surplus, you will be more flexible as to how you can invest your available capital. If the difference per 1.c) is a shortfall, your focus should be how to invest your available capital so that it provides a stable and secure monthly income. It may also require you to reconsider your budget per 1.a) with the view to reduce your cost of living.
2. Having determined your household cash flow position as per 1.c) you now need to decide how to invest your available capital.
   1. In case of a surplus per 1.c) you can invest your discretionary capital (cash from pension fund, retirement annuity fund, unit trust, term deposit etc.) more aggressively in an effort to achieve higher investment returns.
   2. In case of a shortfall per 1.c) you need to invest your discretionary capital (cash from pension fund, retirement annuity fund, unit trust and term deposit) more cautiously in an effort to secure a stable and secure monthly income.
   3. Ideally you should have funds that are readily accessible (money market, savings, call deposit etc.) to cover your expenses in 1.a) for at least the next 12 months. This may require you to invest your (and your wife's, if relevant) one-third from your pension- and/or your retirement annuity fund in such a manner. Alternatively, if your mortgage bond would allow you to take up money again without major effort, in case of an emergency, your (and/or your wife's) one-third can be used to repay the outstanding balance on the mortgage bond.
3. Paying back a mortgage bond with one-third pay-out from a pension/ retirement annuity fund (untaxed) is usually a sound investment decision, provided that you can draw on that mortgage bond again in case of an emergency as per 2.c).
4. Having your full pension fund capital paid out to be invested again is usually not a sound investment decision, besides the fact that the rules may actually not allow this. In the first instance you will be taxed on the full benefit. You now need to invest the balance elsewhere, after tax has been deducted. It will be very difficult to achieve competitive returns on such an investment for a similarly stable income, as the pension fund would offer. You would typically incur initial and ongoing fees on such investment, or would sacrifice investment returns, that would not be the case if you retained your capital in the pension fund to receive a monthly pension, if its rules allow you to do this.