50 NOT OUT: What an innings, now for the century.

May 15, 2018
Posted in Blog
May 15, 2018 Mduduzi Luthuli

Turning 50 is a milestone for many reasons: Children are grown and the big debts, such as saving for tertiary and the bond, make less of a dent. Financial planning in this decade is tricky, however, and hugely important. For many, the target retirement age is now in sight. As you get older, time seems to move faster as well. You really understand how quickly 15 years can get by you and the importance of avoiding bad money choices as retirement nears.

I have spoken extensively about the importance of retirement planning in my previous articles, so I won’t do so in this one. If by now, having read my financial literacy articles, you still don’t understand how important it is to be saving for your retirement, you are beyond my help.

Make a clean break with your children

Financially coddling your kids is a huge mistake as you edge closer to retirement age. Unless you have so much money that your financial advisor is advising you to take advantage of tax-free gifting, don’t splurge on them now. They can borrow for school, a new car or vacation. You cannot borrow to finance your retirement or medical needs.

They should be in or approaching tertiary. Budget for them to finish in four years? Most students take five or six. To avoid footing the bill for another year or two of tuition do what is needed. Check that your child is carrying the max course load and suggest holiday classes or getting a tutor if needed. They need to graduate, find a job and become financially independent.

Saying no to your kid is hard but coddling them is even worse. Your children need to understand that any additional debt at this stage of your life will have a significant detrimental effect. Avoid taking out loans for them, if possible. A good rule of thumb: Don’t borrow more than you can repay within 10 years or by retirement, whichever comes first.

Pay off debt aggressively

Once you retire, interest payments on debt can eat up your limited income, making it difficult to pay off loan balances. Now, in your highest earning years, is the time to aggressively eliminate non-mortgage debt, from credit card balances to auto loans and other debts. Don’t let pride stop you from getting help if you need it. You owe it to yourself and your family not to stick your head in the sand. If loan payments are feeling unmanageable, you may benefit from taking out a consolidation loan to lower your interest rates and help you focus on a single payment.

A trustworthy non-profit credit-counselling agency can help you set goals, make a repayment plan and negotiate with your creditors if necessary. But, beware of sleazebags masquerading as credit counselors! The bad ones make your debt problems even worse.

Evaluate your expenses

Nobody likes to hear it, but the fastest way to save more is to spend less. Trimming your lifestyle to one that costs a little less will allow you to save more now, and it will cost you less to maintain your standard of living in retirement. This is the time you should be saving like hell. This is the home stretch and no slacking is allowed. It is more important now than ever before to not let expenses get in the way of your retirement. Budgeting is a great way to get a feel of where your finances are and keep them on track. Evaluate each of your expenses and determine if any of them can be eliminated or reduced.

A newer trend altering retirement savings is the increased number of adult children moving back home. Be sure to evaluate who you are supporting and how long you plan to do so. Supporting others before and during retirement is fine if you’ve planned for it. Don’t let your children smooch off you. They are nearing adulthood and should be putting in the necessary steps to be exactly that, adults not adult-children.

Decrease your living cost. If your kids moved out of the house for either education or some other purpose, move to a smaller home with fewer rooms. Divert those extra funds towards retirement savings. This is probably the last chance you have, to increase the savings level. If you plan to retire in your mid-60’s and you have 10 years for retirement from now, make maximum savings during this crucial period. Enjoy the fruits later.

Consider long-term care insurance

The great unknown of retirement living is medical costs. If you remain healthy, no problem. But any chronic condition can turn into an ongoing expense that greatly restricts your lifestyle. Long-term care insurance is available to people in their 50’s that many in their 60’s can no longer buy or simply cannot afford.

Many people have a blind spot when it comes to factoring long-term medical care costs into their retirement planning. Even though it is a fact most South Africans will at some point need long-term care, few are planning for it. Many will underestimate the costs and mistakenly believe their medical-aid can help cover it. If we don’t need it ourselves, it is likely that our spouses, our significant other or our parents will. One way or another, it will touch the lives of every single South African. Most of the time, that type of assistance is non-medical, including help with daily tasks such as bathing. The need can arise unexpectedly after a major illness or even suffering an injury from a fall. The costs of such care can easily outstrip retirement savings.

Get a realistic picture of the costs. How much will a nursing home — for those who can’t live independently but don’t require skilled nursing care — cost? For those seeking to remain at home, how much will be hiring a home health aide cost? Are you having these conversations with your adviser? If you can’t afford it now, how will you do so later? Many mistakenly believe medical-aid will help pay for long-term care but most medical-aids don’t cover extended nursing home stays or non-skilled living assistance, which make up most of ongoing care needs for the elderly. They cover medical costs, not care. There’s a difference.

Have a family discussion about long-term care preferences before a crisis occurs. For instance, you might be determined to care for a parent or spouse at home if possible before putting them in a nursing home. But would that person feel comfortable with a home health aide or an adult day care centre while you are at work? Where you live matters when planning for long-term care, especially if relatives live far away. Check out the condition of your home and if it can be modified to accommodate disabilities.

Conclusion

Your 50’s are the years that will most likely determine your legacy. Taking inventory regarding what will be important helps us decide what counts now. When we’re so consumed by our next step (paying bills, getting the kids to school, cleaning the kitchen, doing a thousand household tasks…), it’s hard to think beyond the moment. Take the time to frame how you want to move forward. Looking ahead opens questions people often avoid thinking about. We’re talking about making a Will. Wherever we are in life, it’s always prudent to have up-to-date documentation regarding the part of our legacy we can directly control.

If – God forbid – you passed away sooner rather than later, would your family be provided for? If you can’t answer the question, that’s another legacy topic to discuss with your family. Love must investigate the future. Be specific. Check your life insurance policy and make sure it fits the needs of your family now (not when you first set it up). Are your accounts easily accessible to your spouse (passwords, signature, etc.)? Are there financial irregularities you’ve been keeping a secret? Is there “stuff” you probably should deal with now?

You’ve still got time to make the next few decades count. Thinking about our legacy can be a call to arms for the present. There’s not a single person on the face of this good earth who was created without an important purpose in mind. Now is a great time to take stock of what’s important. There’s nothing like the idea of mortality to bring life today into clearer focus. Whatever you think about ideas such as faith, heaven, and eternity, the fact of mortality casts a unique light on the beautiful clarity of the life we experience today.