Your retirement savings may have been impacted by the COVID-19 pandemic – either because you had to tap into your savings and investments prematurely, or because they bore the brunt of the subsequent down market. If this is the reality for you, consider delaying your retirement to give yourself a better chance at the quality of life you’ve envisioned for yourself once you’ve stopped working.
While most South Africans aren’t able to retire comfortably at the average retirement age of 60, the fact that many are still recovering from the devastating impact of the pandemic has heightened the potential challenges of prioritising retirement as a savings goal, says André Wentzel, Head of Client Solutions Savings at Sanlam.
Beyond that, dramatic increases in life expectancy mean many people will live well past their estimated retirement age, so there’s more pressure on their retirement savings to cover the costs of their golden years.
What a delayed retirement means for your money
Delaying your retirement by even just one, three or five years could fundamentally change your savings, and enable a better quality of life once you stop working.
“If you started saving 20% of your income at age 25 and are on track to retire at 60 and maintain your standard of living, retiring either a year earlier or later can have a 7% to 8% impact on your income,” says Wentzel. “If you increase that to three years, you could expect to retire with 20% less income if you retire early, but nearly 24% more income if you retire later.”
If, on the other hand, you retire at 55, you will have 30% less savings, but 42% more savings if you retire at 65. “So, retiring at 65 instead of 55 (which is the earliest you could access your savings) means your income in retirement is more than double,” says Wentzel.
Similarly, retiring later could help improve your circumstances if you have fallen behind, whether it’s because you started saving later, had to pause your contributions, or tapped into your savings due to circumstances like we are experiencing with the pandemic. The rough rule of thumb is that for every year you paused your savings contributions or delayed starting, you can make up for it by retiring one year later. For example, a 60-year-old retiree who saved without interruption from age 25 can expect about the same savings as a 70-year-old retiree who started at 35, or who started earlier but tapped into and depleted their savings at 35.