MONEY CLINIC: Should I pay off my debts or start a business?

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QUESTION: I am going into retirement soon. All my savings went towards my children’s university tuition. I am due for retirement in two months. When getting a pension, what should one do? Pay off all the existing debts and then start a small scale business, or start the business first? My pension will be less than R150 000.00

ANSWER: Clive Atterbury, Financial Planner at Atterbury Financial Services, answers as follows: “Let us assume that the R150 000 mentioned is a yearly pension income. “Then my recommendation is that the person should first pay off all debt. If a business, however small, is first started, and it is not a success generating extra income, he/she will still have debt and/or few funds to pay it off. 

“The unfortunate fact, as shown by statistics, is that a big percentage of small businesses started by people after their retirement, never get off the ground successfully.

“Then if after having paid off the debt, or while paying it off, the person struggles to manage with the available pension, he/she could try and get an agreement from his/her children to pay back the cost of their studies over time.

“It does not help that he/she has paid for his/her childrens’ studies, but now has an inadequate pension. The possibility does exist that his/her financial problems will in future also become the childrens’ problem. Therefore they might as well start helping by paying off their study costs to him/her. 

“A small business to supplement income might still be a proposition after retirement (maybe in partnership with a child). But first make sure of a more or less fixed and certain income stream; and be cautious of debt in retirement.”   

Atterbury says it is a difficult choice and the answer might be seen by some as harsh towards the children, who might still be trying to establish themselves. However, he says, from an unemotional stand point, this would be the best way forward.

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