If you know me at all, you’ll know that I am not the guy to talk about retirement or finances with any authority. I’ve always left it to the experts. The smart folks. The people who know what’s going on. Below though, is my own personal money story that I have shared with so many individuals over the past while, and thought I’d share it publicly too, as most people I’ve shared this with are in a very, very similar position.
This journey had turned me from a bystander to a valuable contributor, beyond the one just paying the money.
For years I thought my retirement, when it happened, was pretty sorted. I’d stop working at 65 (that seemed to be the standard retirement age thrown out by everyone) and my RA would kick in and have me covered for a fruitful, old-man lifestyle. At least, that’s what I thought and believed, but I had no true idea of whether that was going to happen, really. Call it blind faith, hope, trust, whatever you want, but the idea of putting money into something called a “retirement annuity” made complete sense to me. Annuity income after retirement. A no-brainer. When I hit 65, I’d be sorted.
How wrong I was.
Now, before you blame me or my financial advisor for not knowing whether this was actually going to be a reality or not, let me tell you that at least once a year since I was 23 years old I was sat down and shown my potential future, except I had no idea what it all meant. I tried, I really did, but the numbers and timeline were just too far away to comprehend. The truth is, I had no idea if that was, in fact, a lot of money at retirement, or how much money I’d realistically need to live on monthly. Would I still be paying off cars or a house? Would I be taking big holidays away? I had no clue.
Research will give you sums of what ‘the magic number’ is. X times your current salary multiplied by Y years you have left to the square root of what year you feel like dying, add sixteen zeroes after that number, and Hey Presto, there’s your retirement number! That’s how much money you need. Simple!
Ummm. Not really.
There’s no one magic number, only your magic number. And just to be clear, that magic number is not necessarily calculated on what you have now, it should be calculated on what you need then. So when you happen to find that elusive magic number and jot it down somewhere you’ll never forget it (we’ve all got that magic number jotted down, right!?) the next step is to put a detailed plan together, considering inflation, all your assets, contributions and savings over time, key events over that time (new car, move house, kids’ university, buy a boat) and you’ll have the perfect dashboard view of what you need. Simple!
Ummm. Not really.
The average Joe (of which I am one) doesn’t necessarily understand how to build these calculations. The idea of creating a future-wealth plan is so incredibly daunting that we don’t even start, so all our trust is placed in experts in the financial services industry to have a look at what we have now and to hope they say we’re on the right track.
With all respect to financial advisors, while they can look at your portfolio – all of your numbers – and have some sense of what you have right now, they really can’t give you a definitive answer (that you can clearly understand) as to whether you’ll be okay or not at retirement. Why? Because it’s difficult! They’re not in your everyday conversations about budgets, plans, goals, holidays, anything to do with your finances. They get 60-90 minutes of your time asking some questions, getting those high-level answers and have to make adjustments accordingly, and we expect them to make the best decisions for us. They’re the experts after all, right? While that’s the norm, that’s a shit norm. And by us average folks giving them all the responsibility to do this in a short space of time means that we are completely outsourcing our plans for financial wellness to someone who sees us once, maybe twice a year.
Shame on us.
So why now, at 99-days-to-40-years-old, do I believe this?
3 key events happened over the past decade that delivered me to this point.
- In 2010, when I met my future wife, I had no savings to speak of apart from an RA that I was putting minimal contributions into every month, and life insurance – which wasn’t for me anyway, and not a savings option. My advisor at the time always suggested contributing more into my RA each month, but that BIG number showing at 65 looked good to me, plus, I was 30 and still wanted disposable income for entertainment, so I ignored his pleas. Lauren, on the other hand, was brought up with an appreciation for the power of saving money. She had investments – onshore and offshore – and our financial conversations started to drive an appreciation from my side as well. It was tough because I always had a “make money, spend money” lifestyle, ensuring I ‘lived’ each month by spending what I had. Over the past 10 years, my view shifted, and we’ve been able to save as much as we can where possible, squirreling a little away here and there. My mentality around money has changed dramatically.
- Fast-forward to March 2020. I’d just left my business (and a stable income), and COVID happened which killed a large portion of my future potential business, so we needed to adjust our budget, which included pausing any saving plans and to move money around in order to still manage our monthly finances without having to live off credit. Adjusting monthly budgets is never a fun exercise. However you play it, the process of ‘cutting back’ – while smart – is lathered in a feeling of failure and inadequacy. Because Lauren and I have a strong and healthy relationship regarding finances, we took the task on together – including our financial advisor – and shuffled things around. Payment holidays were put in place, and Woolies would be seeing us less. We knew this would put a dent into our savings, but it was a decision we were both happy to make. What we didn’t know, though, was how much of a dent it would actually make.
- April 2020, one month later, one of my business peer group forum members, Alex Cook, sent me a message. We’d been discussing my new life’s plan in our forum, and he wanted to help me out by giving me free access to an online finance tool that he’d built to help people understand their retirement and manage their cashflow better. Having some extra time on my hands I happily agreed to check it out. We logged in and plotted our savings, assets and monthly contributions in the respective slots, allocated a detailed budget for both right now and what we believe we’d need at retirement (medical aid goes up, home loan goes away, for example) and the results were delivered. They were horrific! And I loved it.
Why did I love this horrific picture? Because I could finally, FINALLY see the bigger picture. The journey from now to retirement – and beyond – was laid out in front of me. All the numbers that have been shared with me by financial advisors were all there too, except now everything was consolidated and clear. You need X by this date in order to have a safe and happy retirement. Simple!
Because now we had an opportunity to play with our own retirement plan, without needing our advisor present, and adjust accordingly. Can we really afford to retire at 65? What if we moved it to 68? What if we added an extra R100 into that monthly contribution? Building scenarios for ourselves meant that we could now CLEARLY see, in real-time, what kinds of decisions we need to make in order to retire with enough, working toward achieving our own magic number. And with the help of our advisor, be steered in the best direction. Win-win.
I loved the tool, Wealthbit, so much that I’ve joined the team on a contract basis to help get the word out to more people.
Analysing your financial reality is scary, I know. Seeing our not-so-good stats was not followed by popping a bottle of champagne. But ignorance with regards to your retirement is not bliss. Forewarned truly is forearmed. The statistics of people who can safely retire in South Africa, I’ve come to learn, are shocking. With all the collective saving we’ve been doing over the past 10 years, thinking we’re heading to a truly safe and happy retired life, Lauren and my Wealthbit currently shows that we’re still behind, but, I’d rather know that I’m behind, than think I’m ahead and be wrong, when it’s too late.
As Don Packett, the average guy with a previously-average grasp on his future financial happiness and well-being, I’d suggest asking your financial advisor to check Wealthbit out to enable you, the person who needs to know, to truly understand where you’re positioned for retirement so that you can, together, plan accordingly.
Originally posted on LinkedIn.