Make your retirement investments work for you
enough to meet the higher income needs. As we are living a lot longer than our parents did, we need to plan on living to 100. If you retire at 65, you would have a retirement timeframe of 35 years. To put that in perspective, that is the same timeframe that it took you to get from age 30 to 65. If you think about all the changes that you had in your life over that period and the changes in salary that you experienced, you can appreciate why it is important to invest your retirement funds correctly.
Solutions
There are two possible solutions that I would consider:
1. Restructure your investments
You should get a skilled financial adviser to calculate what return you need on your investments to meet your after-tax income needs. This would typically be a return of between inflation + 2% and inflation + 5%. Once you have this number, you can structure your investment portfolio to ensure that you have a stable income over the short and medium term, and enough growth over the long term to meet your overall target.
A model that I like to use is the “three-pot system”. The amount you put in each pot will depend on your specific needs. Each year, you should review the investments and rebalance the pots.
2. Restructure your pension
If you find that you still do not have enough income after restructuring your investments, then you should consider converting all or part of your living annuity into a guaranteed life annuity.
You should find that you can get a much higher monthly pension from a guaranteed life annuity than you could from a living annuity. Below is an example of the pension that R3,000,000 would buy a couple who are 75 years old:
As you can see, you can increase your income by more than 50% by going this route.
I would recommend that anyone who is receiving a living annuity regularly meets with a financial adviser to ensure that the investments are correctly structured. You will have a lot more room for manoeuvring if any problems are spotted early.