What should I do with my retirement payout?
Lechedzani Pitso | Monday July 14, 2014 15:47
They had been wise over the years - saving and planning their retirement properly. They owned their own home and had paid off all their loans in full.
Anderson had always dreamed of owning his own business, and thought it would be a fun way to pass the time in their retirement to turn his hobbies into a business.
In the past he’d received comments from their friends about what a good business this could make, so Anderson didn’t even take the time to put together a proper business plan or complete a market analysis.
Anderson and Patricia got started immediately, registering their company and buying stock. They cashed in their retirement funds and used these almost entirely to set up the business.
Business inexperience
What we forget (or maybe don’t realise) is business does not just come knocking on the door. It takes time and money to market your business and establish a client base. Most businesses need enough capital to stay functioning for the first two years, before the business is a viable stand on its own. This is assuming that there is a need for the business in the first place!
The bottom line is, very few start-up businesses make it past the five year mark.
As Anderson and Patricia had not completed a market analysis before spending their entire retirement funds, their business was very slow.
They soon realised they would need to invest more money to keep it going whilst they found some clients and established their business. They decided to re-mortgage their house, in order to get the loan they needed.
Disaster
As time went on, it became apparent that the business was still not developing as they had dreamed, and it was becoming harder to keep the doors open. Unfortunately Anderson and Patricia no longer owned their own home, they are in debt and have lost their retirement fund. They have to make repayments on their mortgage again – but this time from a dwindling income.
Patricia blames Anderson for squandering their assets - and now they are into their sixties neither of them can go back to work and start saving again. The stress is unbearable.
Either you are an entrepreneur or you are not.
Someone who has been an employee all their life is unlikely to have what it takes to make a success of business. Even if the skills are there in old age, businesses that succeed are lucky - they happen to be in the right place at the right time. Then some youngster comes along with more drive and determination and starts taking customers from you.
Hobbies may earn you a few extra bucks, and that’s great, but don’t be fooled into thinking your hobby is a business. Doing that will lose you money.
Let’s face it - if owning your own business was easy everybody would be self employed, and no companies would have employees!
Is it wise to invest once you are retired?
We are too often tempted when we have a lump sum of money to spend it unwisely. When we retire, it’s very important to be careful with how to spend and invest our money. This is because we don’t have the time and the energy left to earn that money again.
Firstly you must plan your monthly income in retirement. You should invest your money in a low risk manner and draw only enough to live on each month, ideally living off the interest your lump sum is making you each month, and not eroding your capital.
Retirement is not the time to start business or put your money into high risk investments.
Beware
Beware of sales people trying to sell you stories of “Make your Fortune”. We’ve seen the adverts: “come to our seminar and we’ll make you rich”. Stay Away.
Beware of the quick buck – if there’s one thing that is obvious it is that making money is not easy. If a profit on an investment sounds too good to be true, it’s simply not true! Stay away from risks and keep your nest egg safe.
Dream house
It is tempting for some to use a retirement payout to build a dream house. However, as you get older it is harder and harder to earn money, and you should be saving that money – not building a luxury house that you don’t really need.
The reality is that you need that money to live off for the rest of your lives. Build a house that you can afford, whilst you are still earning a salary. You must already own your house in retirement – otherwise how are you going to pay rent?
Do you want to be in your retirement:
l In debt?
l Dependent on your children?
l Dependent on your extended family?
l Surviving on a small state pension?
OR
Financially Independent?
If you think the last option is important, you need to save money for long term retirement planning, and not spend your retirement lump sum on new schemes, business or investments.
Author: Leche Pitso – Marketing Manager
© S.C.I. Training run financial wellness programmes in Botswana. For help and information contact them on 3180243 or training@scifinancial.com
* Names in this article have been changed