Question:
My wife (who does not work) and I are 52 years old and not in the best of health. She had breast cancer, which has cleared, while I had a mild stroke with a couple of stents in the arteries.

I have about R1.5-million in a pension fund and an outstanding mortgage of R120 000 on a house worth at least R1.2-million.

I have two very poor insurance policies, but because of our health issues these are loaded.

I currently earn about R18 000 and would like to retire or at least slow down at 55 due to my ailing health.

Will this be possible for me? If not, what can I do to make it possible? If there is no way for me to make this possible, what should my next target be?

Answer:
It is often the case that circumstances such as these sneak up on you and before you know it things can start to look a bit bleak. This is why financial planning should start early on in one’s life. The potential problems are identified earlier and provision can be made in good time without any sneaky surprises.

However, planning at any stage is better than never planning at all. One has to focus on the current circumstances and move forward appropriately.

In your case there is, thankfully, some pension saved and also some equity in the house which can be utilised. The question is, is it enough to be able to retire early at age 55?

If we assume an average investment return of 10 percent and a current monthly contribution of 15 percent of R18 000, then in three years’ time the pension will be worth R1.884-million.

The house could also be sold when one retires or scales down and a cheaper home purchased, adding the extra capital to an income generating investment to supplement the pension.

As a very rough guide, we could illustrate as follows: at an investment return of 10 percent, an R1.884-million pension could earn R15 698 per month and, say, R500 000 equity from the net downscaling of your home could earn R4166 per month, which is very close to R18 000 per month before tax, without eating into your capital but also without taking inflation into account. Please bear in mind that I have used 10 percent returns for ease of calculation and returns could be less, affecting the income.

If at all possible, depending on the type of work you do, try and negotiate a consultancy type of contract with your employer (or a new one in your field) after your retirement date to supplement your pension. There are many companies willing to pay for extensive experience without having to employ a full time person. In this way one would work less but still earn some income. Some people, in fact, earn more in this phase than a salary alone, but don’t be fooled into complacency. This 'deal' could end after only a short while, depending on both your health and the employers needs! So continue to save more and spend less, trying to build up the capital before stopping work altogether.

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