The Covid-19 pandemic does have a disruptive influence on the functioning of the South African as well as the global economy. South Africans have been influenced by this disruption in a minor or major way and influences their personal financial ability to contribute to retirement funding.
The people most affected by the pandemic are those persons who were retrenched and must consider the option of an early retirement due to diminished job opportunities and the high unemployment rate. Business owners were also negatively influenced by the pandemic and some of them will not reopen their doors. If they do not have sufficient funds available during these testing times they are tempted to opt for early retirement.
The option of an early retirement will have a negative effect on your retirement dream. The formula for a dream retirement – during which you can live the same lifestyle that you enjoyed while working – are twofold namely time and contributions. Both will be implicated when you retire early.
Time: The longer your retirement funds are invested the more growth it will be accumulated. Compound interest will work for you and will add value to your retirement savings.
Contributions: The bigger your monthly contribution to your retirement savings the more retirement savings will be available for retirement.
The risks of early retirement are that you could outlive your retirement capital, or you must lower your living standard according to the retirement capital that is available. An early retirement is an option when you have started to invest in retirement funds from the first income and that these funds will finance your current living standard.
How will business and the economy be affected when people retire early? The positive side will be that unemployed young people will have a change to be employed at a lower cost to the employer. The negative side would be that a lot of experience will be lost at the workplace.
People who lost their employment in the formal economy could start their own personal business venture. History have shown that many successful companies have start to do business when their founder was forced to take early retirement. There should be however training and seed capital available for future successful business ventures.
Early retirement should be an opportunity for those to be affected to start their own business venture and create their own income. There are role players in business that could assist to make the new ventures profitable. The Fourth Industrial Revolution could be the avenue to empower these people.
Dr Riaan Botha, D.Phil, AFP ™