Financial needs analysis for retirement (with worksheet)

 

This analysis provides a detailed assessment of your financial health, helping you make informed decisions about your retirement.

 

By Wouter Fourie (CFP®)
Director of Ascor® Independent Wealth Management.

Wouter Fourie is Past winner of the FPI Financial Planner of the Year competition and the co-author of The Ultimate Guide to Retirement in South Africa and, Secure your retirement.

 

Retirement planning is a critical aspect of financial management that ensures a secure and comfortable life post-employment. The best way to calculate how much you need for retirement and determine the appropriate retirement age is through a comprehensive financial needs analysis conducted by a qualified financial planner. This process provides a clear picture of your financial health and helps you make informed decisions about your retirement.

 

What is a financial needs analysis (FNA)?

A FNA, also known as a fact find, is an in-depth assessment of your financial situation. This process evaluates various aspects of your finances to ensure you are on track to meet your retirement and other financial goals. A FNA:

• Identifies how much you need for retirement and other financial goals;

• Determines whether you can afford to retire and when you should retire;

• Assess your dependants’ needs if you can no longer provide for them;

• Structures your medium- to long-term financial plans;

• Clarifies what you can afford and what you cannot;

• Defines your retirement lifestyle goals; and

• Provides a reality check, often serving as a wake-up call.

 

The importance of continuous financial review

A financial needs analysis is not a one-time event. It requires regular updates and reviews to adapt to changing circumstances. According to the 2022 Just SA retirement survey, while 80% of pensioners believe setting retirement objectives is important, only 52% are actively planning, a significant drop from 72% in 2020. Moreover, only 30% of pensioners use a financial advisor to stay on track, and a third have not done any retirement calculations.

 

Stages of retirement planning

Early stages

In the early stages of saving, the focus is on building a substantial retirement fund. At this point, you aim to hit the larger target area.

Pre-retirement (around age 50)

By the time you reach about 50, or at least 10 years before retirement, you should fine-tune your retirement targets. Most people in this age group have fewer financial obligations, such as children’s education, allowing them to allocate more money towards retirement savings. This is an ideal time for a detailed financial needs analysis to set accurate retirement goals and determine any necessary top-ups to your savings.

Late stages

If you haven’t saved adequately for retirement, high-risk investment decisions in hopes of improving your financial situation are not advisable. Instead, consider:

• Extending your retirement date: Working an extra five years from age 60 can increase your pension by up to 80% due to compounding returns and reduced tax payments.

• Taking on a post-retirement job: Earning additional income post-retirement can help cover expenses.

• Starting a new business: Ensure you have a well-considered business plan and necessary skills, and avoid using all your retirement savings.

• Living frugally: Dramatically changing your lifestyle to reduce expenses.

Personalised retirement planning

No two individuals have the same financial needs for retirement. Decisions must be tailored to your specific needs and financial capacity. Planning is crucial – if you don’t know your destination, you will never reach it.

 

Simple lifestyle retirement income worksheet

A useful tool for planning is a retirement income worksheet, which helps you estimate your monthly income needs and anticipated shortfall or surplus.

 

Monthly income required	Amount (R)
Savings
Debt repayment
Housing costs
Utilities (electricity, etc.)
Medical
Groceries
Clothing
Entertainment
Travel
Total A
Less:
Anticipated pension at retirement
Anticipated income from other investments
Total B
Anticipated shortfall/surplus (Total B less Total A)

Conclusion

A financial needs analysis is essential for effective retirement planning. It provides a detailed assessment of your financial health, helping you make informed decisions about your retirement. Regularly revisiting your financial strategy ensures that you stay on track to meet your goals. For more detailed guidance and personalised advice, consider consulting a professional qualified financial advisor – search for a certified financial planner (CFP).

 

For more insights, refer to the best-selling book The Ultimate Guide to Retirement in South Africa by Bruce Cameron and Wouter Fourie CFP, and visit www.retirementplanning.co.za or visit www.ascor.co.za for professional independent advice by a team of CFPs.

 

This article first appeared on moneyweb.co.za at https://www.moneyweb.co.za/financial-advisor-views/financial-needs-analysis-for-retirement-with-worksheet/

 

Read more about Ascor® Retirement Planning Services

 

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