Retirement flair or despair?

THIS week, following one of our fund management meetings, we made the decision, for the first time in 10 years, to revisit our clients’ retirement fund monetary goals.

First and foremost, when planning how much you need at retirement it is crucial to understand a few parameters, including time until retirement, risk and ideal retirement income.

The bottom line is that you do not want your final retirement savings to diminish and you must, therefore, not only have sufficient capital, but once you have retired, your growth must be greater than your annuity costs and income.

When the economy and markets are growing, that is relatively easy to accomplish.

However, over the past 15 years, we have seen a situation where economic and investment growth have reduced because clients are not receiving the same growth and they are still taking the same or higher-income drawdowns.

The result of lower growth and inflation is that it places existing and future retirement funds at risk.

To illustrate this, here is an example of how much capital you needed then and now to earn R10 000pm:

2001 – 10% annual drawdown meant that you needed R1.2-million capital;

2006 – 7.5% yearly drawdown meant that you needed R1.6-million;

2016 – 5% drawdown a year means you now need R2.4-million capital.

As you can see, due to lower economic/market growth, the value that is needed to earn R10 000 a month has doubled in 15 years.

Also, the purchasing power of R10 000 has halved in 15 years.

Investors and retirees deserve to be warned, just as you deserve to be informed, of the steps that you can take to prevent yourself falling short of your retirement savings.

Fortunately, these are quite simple steps, including discussing your portfolio and goals with a professional, independent, adviser and being open and realistic about your budget and goals, so:

Coordinate your retirement, tax and estate planning into one plan.

Compound growth – cheesy, but the sooner you start, the sooner it kicks in and adds immeasurable value to your investments.

Retirement planning is not rocket science. It does, however, require that you do make it a priority and, together with your adviser, take an active role in monitoring its progress.

Only that way will you get to retire with flair and not in despair.