“There is real concern among many investors about the likelihood of outliving their retirement savings. With the increased cost of standard of living and longer life expectancy, investors need to consider available strategies to ensure they don’t outlive their money. Many of us will need more income during retirement than did previous generations due to longer life expectancy and rising health care costs,” revealed Tony Barrett, a wealth manager at First National Bank (FNB).
According to the latest FinScope South Africa Consumer Survey, from the age of 60, 28% of adults do not have enough money to save after covering their expenses. Furthermore, he report indicates that 2.2 million consumers consider terminating their insurance and/or investment policies, rather focusing on paying off their debt.
Barrett noted that there are a number of retirement planning strategies that people can follow to help build their retirement savings and ensure that they have enough when it comes time to retire.
Delay your retirement
According to Barrett, retiring at the age of 60 or 65 is fine if you have a life expectancy of 70. However, people are living longer, and therefore need more money to see them through retirement.
“Delaying your retirement in such an instance can be beneficial. This allows you to have more time to save while your investments grow. Retirement needs are financed over a short period making it possible for you to protect your legacy,” said Barrett.
Redefine your retirement
While some may dream about the day that they no longer have to work, it can start to get monotonous after 40 or more years of working. Barrett suggested that after retiring people take up a part time job or consulting in your field of work.
Not only will this help with the boredom, but it will also bring in some extra money. “Spending five or ten years financing your lifestyle needs from consulting income, and letting your retirement investments grow, can do wonders for the retirement cash flow forecasts,” noted Barrett.
Ignore inflation at your peril
“Traditional retirement investment advice has been to de-risk one’s portfolio and avoid so called risky assets such as equities. However, the danger of this strategy is that relying solely on cash and bond yields will not sufficiently protect the portfolio from the effects of inflation. The savage effects of inflation will severely deplete the effective buying power of the retirement investment portfolio. To effectively invest over the long term, one must expose a portion of the portfolio to growth assets such as equities,” revealed Barrett.
Manage expectations
When it comes to retirement, it is important to be realistic about the lifestyle that you will be able to afford.
“One cannot live and be merry in retirement when the capital pot is not sufficient to finance the lifestyle. Being realistic about the level of income that the retirement portfolio can sufficiently fund over the retirement life expectancy is essential,” explained Barrett.
In order to properly plan for retirement, Barrett highlighted the need to consult a credible financial advisor. “Taking professional advice on a retirement savings plan that is realistic, flexible and closely monitored will go a long way to helping you enjoy your golden years,” he said.