4 tips for soon-to-be retirees in South Africa
Only 6% of South Africans retire with enough to maintain a comfortable lifestyle similar to their working life, says James Fraser, the chief operating officer at PPS Investments.
Fraser added that on top of such few people having enough, 49% do not have a retirement plan.
In light of this, PPS Investment outlined four tips to bolster retirement savings, other than continuing to work after retirement age:
Determine how much is enough
Determining just how much is needed to cover expenses is tricky; however, doing so will assist in establishing a foolproof retirement plan that can be kept on track.
“Consider what monthly spending requirements will realistically cost in retirement, such as medical aid, short-term premiums, etc,” said Fraser.
“About 33% of retirees underbudget funds to cover medical expenses, which is the second largest expense in retirement.”
The COO noted that it is important to also keep in mind ad hoc expenses (such as holidays) and a reasonable amount to set aside as an emergency fund.
Take a consolidated view of retirement savings
“Some people may have retirement savings spread across various retirement fund providers or have savings earmarked in product wrappers not specifically designed for retirement savings,” said Fraser.
PPS Investments said that you to get a better reflection of what could be available when retiring, you could aim to take a consolidated view of all retirement savings across providers.
He said that tools and calculators are available to show illustrative future values and indicate how much additional savings are required monthly to achieve the goal within the time that’s left before retirement.
He added that consolidating investments with one provider could also afford access to reduced ongoing administrative fees.
Combatting inflation
Inflation globally remains at elevated levels. Conventional wisdom teaches us that we should seek out certain asset classes during periods of high inflation, said Fraser.
“Certain asset classes, like inflation-linked bonds, which have an inflation hedge serving as a buffer against inflation as the coupon and principal adjusts as inflation changes; and cash, which tends to benefit from increasing short-term rates, as monetary policy acts to control the inflation level.”
He said that there is however, another way to look at the scenario by seeking out investment options that offer layers of diversity, such as a multi-managed fund, which is aligned to the investment objective, such as CPI+3% and time horizon (short-, medium- or long-term).
Fraser said that a multi-managed fund combines various asset classes, managers, and funds, which are blended to create an optimally diversified portfolio well-poised to achieve the set objective over time.
“With sensible diversification, market forces like inflation shouldn’t matter because different components of the fund will perform well during various phases in the market cycle.”
Invest beyond retirement
When retiring, there’s no need to stop investing toward retirement savings, he said.
“There are retirement vehicles, such as living annuities, that offer a component of continued growth alongside a regular retirement income stream. It’s important to be comfortable with market fluctuations, as the risk associated with investing is carried by the annuitant.”
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