Planning for uncertainty

-By Elke Zeki

 

Most people build their wealth over a lifetime.  Very few make enough money once-off or in big tranches.  The power lies in the small compounding effect of a long term, disciplined savings plan.

We would therefore argue that taking a short “break” from your career should not have a significant impact on your retirement.

The biggest risks you face on being retrenched are the short-term survival considerations.  What do you need to do to get through the next year?  What are the biggest pressure points?

 

Liquidity

Having access to cash immediately is important and will give you a sense of security.  This includes money in a cheque account, access bond, credit card, overdraft facility and/or voluntary investments.

You need to be in a position where you can cover expenses for at least 6-12 months.

Yes, retrenchment comes with a severance package, but this is not always guaranteed and often not enough. You cannot rely on this.  You must make sure that you save during the years that you are employed.  Not just towards your retirement funds but voluntary, liquid investments as well.

Not having enough savings may also have the following unintended consequences:

  • You are forced to withdraw retirement savings to fund lifestyle or cover debt until a new job is secure. Sadly, many are forced to do this at great cost.  It is not ideal as these savings (Pension/Provident fund) serve another purpose and withdrawals are taxed heavily.  If you draw your retirement savings you need to make up for it with future savings and that is very difficult to do.
  • Anxiety may force you to take an opportunity quickly that is perhaps not the right job for you. Whereas when you have enough savings to see you through 6-12 months, it gives you time to introspect about what is important to you and what you really want to do.
  • Not having money makes the emotional recovery harder.

 

Losing cover

If your employee benefits include medical aid, life and disability, you will lose the cover.  You therefore need to take out your own cover once unemployed and your budget needs to take these costs into consideration.

 

Taking longer than expected to find employment

This can be financially devastating.  There are two very important tactics here:

First, start looking for new opportunities immediately.  Don’t procrastinate or take time off.

Here are a few short tips on effectively looking for work:

  • Use your network – this will be your best source of possible opportunities. Experts estimate that up to 80% of new jobs are found through networking.
  • When loading your information on LinkedIn or Pnet always uses searchable words to describe your experience and job titles. As an example, I will use Financial Planner and Wealth Manager instead of Director of Foundation Family Wealth.  Use descriptive, searchable words.
  • Have your CV checked and updated professionally.
  • Use quality recruiters if you have no success using social media and platforms such as LinkedIn.

Second, practice frugality.  Said simply, don’t spend.  You have to consciously choose to spend less.  This has an immediate effect on your pocket and is the only way to make your money last longer if necessary.

Substitutions for cheaper brands or buying in bulk are small examples that can make a big difference.  Of course, living frugally will only free up a certain amount of money each month and can certainly diminish your joy a little, but it is a successful, short-term survival strategy.  Your ultimate long-term goal is to improve your income rather than limit spending.

 

Your age

People nearing normal retirement age often find it harder to find employment again.  This event then forces early retirement.  If you have saved enough to fund retirement, it’s okay, but for most people this poses a serious problem.   Our cash flow calculations often show that delaying retirement for a short period may be the difference between retiring successfully and running out of money.  Therefore, the last few years are crucial and losing your job during this time is significant.

 

At Foundation our approach is to navigate uncertainty with empathy and sensitivity.  We also give clear guidance to help you make financial decisions that will enable you to take care of yourself and your loved ones until you find your feet again.

Our approach is after all, the foundation of our motto: Wealth for Life!

Let us know if you need help you with cash flow analysis, scenario planning and/or budgeting.

Are you survival fit?

 

<Foundation Family Wealth is an Authorised Financial Services Provider>

 

 

 

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