How to cope with a retirement shortfall

Contrary to what you may believe, many people don’t retire with the lifestyle that they thought they would. This is because they often come up with a shortfall or gap in their pension savings. This could be due to a myriad of reasons, including: not saving enough, drawing on pensions before retirement, fees taking out a huge chunk of savings, or the underperformance of the investment vehicles into which the pension savings was invested.

While South Africa is in the grips of a recession, the concern is that more people will dip into their pension savings to deal with pressing financial commitments. Andrew Davison, head of investment consulting at Old Mutual Corporate Consultants, says that the recently released 2017 Old Mutual Corporate Retirement Monitor shows a dramatic increase in the number of fund members who intended drawing cash from their retirement savings should they change jobs (35% compared to 19% four years ago).

There are several factors influencing this behaviour. “These include the current economic downturn, increased debt levels, an increase in retrenchments and the tendency to change jobs more frequently,” he says.

He adds that in light of the current economic landscape and subsequent strain it is placing on consumers financially, South Africans may be more inclined to spend their retirement savings when they should instead be reinvesting it for when they most need it, namely retirement.

“Unfortunately, the decision to access retirement savings early to alleviate current financial strain has a huge impact on future finances, one that retirement members often fail to take into account, or are simply not informed about.”

So what can you do if you are facing a retirement shortfall? Here are a few suggestions:

  • Pay the money back

If you have a few more years left to retire still then try to up the amount you are putting away in your retirement savings pots. Cut back on spending money on luxuries, like eating out and going to the movies, and use that money to pay towards your retirement.

  • Work longer

If you dreamed about retiring early but your finances aren’t able to match this goal you’ll have to work longer. Speak to your financial advisor and see what working an extra five or ten years will bring you in retirement savings. If you’re not as fit as you used to be see if you can get a job that’s more desk bound or see if you can get a part-time gig.

  • Get onto your employer’s retirement savings plan

If you have till this point saved money yourself and not participated in your employer’s retirement scheme now is the time to join it. You may find that you’ve been missing out on your company’s matching contribution, which is like passing up on free money.

  • Speak to your financial advisor

Speak to a professional, accredited financial advisor to see why and how you are falling short. Perhaps it’s just a case of switching your investments or perhaps the reason behind the shortfall is more complex than that.

  • Find ways of generating an extra income

There are ways of making extra cash from contracting out your skills and knowledge to selling the stuff you make from hobbies like knitting, sewing and woodwork, to renting out your room, granny flat, or home.

If you find you have a retirement shortfall, it’s not the end of the world. Chances are you’re in the same boat as many other people. The key is to do something about it and to act early before it really is too late and you have to consider other drastic measures such as selling your home to fund your retirement or moving in with family.

Adapted from an article by Angelique Ruzicka