Psyche up for successful retirement saving

2017-07-09 15:57
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Johannesburg - For many, retirement is defined by anxiety and worry, but with the right mental preparation this does not have to be the case, according to Emma Heap, managing director of retail at 10X Investments.

A holistic planning process which evaluates both your material and psychological resources is what's needed to enter this new phase well prepared.

The most important outcome of this planning process is to identify the relationship between your emotions and your decisions, and to assess whether your actions are indeed in your best interests, or simply reactions to your changing circumstances.

When facing retirement, the following questions are typically top of mind:

  • Have I saved enough?
  • How much money am I going to need?
  • Living annuity or life annuity?

“With only 6% of South Africans able to retire comfortably, making sure that sufficient financial resources are available is of prime importance. However, research shows that a successful retirement is not only down to the pennies in your pocket.

"It also requires a stockpile of emotional reserves, which individuals often fail to prepare for," Heap explains.

She says despite the stereotype of retirement as a time of relaxation, the reality is that it also presents individuals with a number of significant adjustment challenges. These are not only financial but also social, psychological and emotional, and affect those facing retirement as well as families.

“The good news is that it is possible to live one’s retirement by design, rather than default, given the right mental preparation,” she adds.

Important questions to consider as part of holistic planning:

What are my feelings about retirement?

While this might seem obvious, the fact is that few actually explore the question of emotional adjustment. Like with all life stages, most people automatically assume that their personal experience will more or less mirror societal norms.

However, the reality is often far from this truth, with a significant portion of retirees finding themselves overwhelmed and unprepared for this very different life stage.

Most retirees focus on an idealised image of retirement in which they are happy and fulfilled. The problem then is that when perfectly normal feelings such as isolation, boredom and even regret creep in, they are experienced as overwhelming or a sign of failure.

Instead of dealing with them openly, people cast these "taboo" feelings aside, causing a persistent sense of unease in daily life. These feelings may also distort their perception of reality and motivate them to make poor financial decisions.

A good way to prepare for these feelings is to acknowledge well in advance that responses to retirement are both individual and complex. Write up a list of anticipated positives and negatives, and discuss them with family or friends.

That way, you can plan ahead for potential challenges and have a strategy for dealing with discomfort if it happens to arise.

What will define me instead of my career?

Even if one’s work isn’t of the vocational variety, most people are identified by their career. For example, a teacher’s identity might be linked to their role as an authority figure and mentor, and when they retire they might feel invisible or diminished in those aspects of themselves.

A good way to address this is to think about what your career means to you in terms of your personal roles and identity, and think of alternative means of expressing these aspects of yourself. For example, the teacher could become involved in a community group in which they contribute their skills and knowledge, or take a more active mentoring role in their grandchildren’s lives.

What will my new sources of social interaction be?

As a large portion of time is spent at work, this is where most daily social contact takes place. While colleagues may not be as close as bosom buddies or family members, these daily interactions can be beneficial in ways we don’t realise until they are gone.

If you are a person who enjoys the social aspects of your work, a good way to deal with this transition is to join groups or clubs prior to your retirement, so that you can have a social network outside the office and family.

How do my feelings affect my finances?

It’s no revelation that money is tied to emotions, and everyone has deeply-held and often subconscious beliefs about it. While we may experience our financial decisions as logical or rational, the truth is that we are more motivated by our feelings than we think.

An example of this would be portfolio selection. As a retiree with 20 or 30 years to live, you would be a long-term investor. You would thus be suited to a high equity portfolio that would maximise your long-term return.

However, because high equity comes with short-term volatility, a person who is fearful or insecure might opt for a low equity portfolio due to the fact that it has less volatility.

And while their mind may be put at ease by doing so, they have in effect compromised optimum investment outcomes in the process, because despite the decreased volatility, low equity also provides lower and slower growth.

*It's National Savings Month. Do you have a successful savings plan or story to tell? Share it with us now and help others to also become Savings Heroes. For more on savings visit our special Savings Issue.

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