We know that Mother’s Day, which is celebrated in South Africa on the second Sunday in May every year, is upon us when supermarket shelves heave under expensively (re) packaged boxes of chocolates, and advertisements urge us to prove we are fabulous sons and daughters by showering Mum with gifts.
But, bearing in mind that your mum knows more than a thing or two about real value and is probably no fool for special offers, why not spend some time and some thought helping her get to grips with a real-life issue that is quite possibly already on her mind: retirement.
Admittedly, money can be a tricky subject in many households, which is why it is often avoided altogether. But, this conversation might be worth making an exception for. The benefits of facing up to your fear and discomfort and having a chat about this key issue could be life-changing for you and your mum.
You may be thinking, “My mother has mentioned retirement savings, she has probably got this sorted.” But then maybe she doesn’t. It is worth remembering that a significant majority of South Africans, even of those who are saving for retirement, admit they are worried about whether they are on track to retire comfortably.
As 10X’s annual Retirement Reality Report shows year after year, having a retirement savings plan does not guarantee a decent retirement. The plan must be revisited and tweaked and kept up-to-date to be fit for the purpose of making sure a retiree is able to maintain their pre-retirement lifestyle.
So what can you do to help your mum? Start by checking in with her. How is your retirement planning going, Mum? Would you be happy to talk to me about your retirement plan? Are you looking forward to retiring? Are you on track? Is there anything you are unhappy about?
Also, it might be helpful to assist with online research and number-crunching. For the web-savvy, there are many tools and resources at our finger-tips to do research about saving and investing and even to crunch individual numbers. Be aware, though, that the internet, which feels like a treasure trove of data and tools to you, can seem less friendly and safe for members of different generations.
An important thing for your mum to understand is if her savings rate will help her save enough by the time she retires to maintain her lifestyle in retirement. If things are not looking rosy there are ways to adjust the formula, be that increasing savings, moving her retirement date out, or reducing the fees she is paying someone to manage her money.
Here are some guidelines for getting started:
1. Help your Mum to evaluate her current financial situation
For many people, this is the tough part. We’ve been conditioned to believe it is rude to ask someone how much they earn, or how much they have saved up.
If you are thinking of chickening out, bear in mind that your mom might be moving in with you if she can’t pay the rent. While you are at it, you might want to have a chat with your mother-in-law too (Don’t say I didn’t warn you).
There are many online calculators, such as the one on 10X Investments website, that will help you tackle the sums.
2. Work out how much she needs to retire with dignity
It’s important to be realistic about the lifestyle your mother is accustomed to, and what she wants and expects in retirement. Many people are forced to downgrade their lifestyle suddenly in retirement, while the fortunate few are ticking items off their bucket list.
It is worth helping your mother to establish how much she needs to cover her monthly expenses and start thinking about the things she might want to do in her ‘Golden Years’. Will she able to set some money aside for travel, for example?
The 10X retirement calculators will help to work out how much money she will need in retirement.
If there is still time before your mum retires, the 10X retirement calculators will allow you to work out various scenarios by changing inputs, such as increasing her savings rate or changing her retirement age.
If your mother is already retired, or plans to retire soon, the 10X retirement income calculator is an extremely useful tool to calculate how long her savings will last based on the amount of income she draws each month. She can also try different scenarios by changing, for example, her drawdown rate.
3. Make changes now to improve your mother’s retirement outcome
If your mother is still saving for retirement, she could look at going into “super saving mode”. Increasing her savings rate now will result in ‘lifestyle smoothing’ by reducing the amount she spends now and increasing the amount available to spend in retirement.
Another adjustment that will cost little or nothing is to reduce the fees she is paying on her investments. If she is paying more than 1% of her total assets in fees a year she is giving away an unnecessarily large chunk of her pension pot.
Spending time doing investment comparisons over a percent or two per year may not sound like a big deal but, believe me, it can make a huge difference. A small fee reduction can make a big difference over time.
Shaving 1% or more off the fees every year by moving to a low-cost provider such as 10X Investments will probably give her many years of additional income in retirement and definitely a whole lot more peace of mind.
That is surely worth 100 spa vouchers or 1,000 bunches of flowers.
Asavela Gwele is Junior Investment Consultant at 10X Investments
The content herein is provided as general information. It is not intended as nor does it constitute financial, tax, legal, investment, or other advice. 10X Investments is an authorised FSP (number 28250).
