Retirement and Investing

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Retirement and investing

3 key factors contribute to the quality of life at retirement: sound financial resources, good health and social interactions. Most retired investors face the dilemma of either maintaining a certain lifestyle or adjusting it in order to preserve their savings and income producing capital base.

Typically, the more income one draws and spends today, the less is available to create future income. When inflation is added to this, it becomes important to also focus on capital growth to retain buying power.

It is impossible for anyone to predict future returns. Currently, the concern is that market returns are expected to be below average for the next decade, due to demanding valuations combined with lower growth expectations. This suggests many living annuities and retirement incomes will come under pressure in the years ahead.[/fusion_text][fusion_text]

Investors should try and match the income drawn with the income produced

Investors should ensure their investments produce reliable and consistent income streams and must always be aware of how much income their portfolio is generating. They must then try to draw no more than the income produced – thus avoiding capital erosion and securing future income.

It is imperative that capital is preserved as far as possible in the early stages of retirement. If investors wish to draw more income than their investment is producing, it should be accepted that they are eroding their capital.[/fusion_text][fusion_text]

Investors should choose investments which produce consistent appreciating income streams

Capital preservation is vital, but investors also need to ensure they protect themselves against inflation and the impact of rising living costs and inflation over time.

Investments that produce a reliable appreciating income stream, such as equity investments, are crucial for a successful retirement. The income produced from equity investments usually tends to grow above the inflation rate, and allows for capital growth over time. The trade-off by including equities, however, is that an investor’s portfolio will produce less income initially.

Investors need to find a suitable level of risk exposure between different asset classes that will ensure enough income and capital growth to sustain them over time. It may be challenging to restrict annuity income to the income produced in todays’ current low yielding environment, but it is preferable to finding that a capital base has been partially or even completely eroded.

It is recommended to be conservative before retirement rather than risk having to find another source of income, such as going back to work or having to reduce one’s standard of living at some point in the future.

Unlike some retirees in other countries, South Africans know that they are on their own in their senior years. No government is going to rescue them. Perhaps because of this, they have shown that they are resilient, adaptable and hopeful when faced with financial and other challenges. They are quick to grasp the necessity of cutting back where they must, supplementing retirement funds through extra work and adopting healthy lifestyles to cut down on medical bills.

Like other ‘boomers’ (those born between 1945 and 1959) around the world, they are changing the rules of retirement to meet their current needs.

A lot can be learned from offshore retirement studies. A report published by Merrill Lynch and Age Wave Leisure in Retirement: Beyond the Bucket List, showed that retirement is not a homogenous period; but that there are distinct phases which require different levels of financing.

For those concerned about funding their retirement, splitting the (possibly 25 years) of retirement into distinct phases could make planning easier. Taking on retirement in bite-sized chunks could ensure that there are still savings for the time they are really needed ie: to pay for frail care.

First phase (about 65 to 75): Technology has ensured that for many, the line between work and retirement has blurred. The Merrill Lynch study says that while nearly 55% of retirees began their retirement earlier than expected, nearly 50% of retirees currently work, have worked, or plan to work in retirement. During the first phase of retirement, if one enjoys good health, retirement, can be postponed or one can retrain, try another job or even start a business. The first phase of retirement offers fabulous opportunities for travel, personal growth, new hobbies and more.

American statistics show that the fastest growing segment of the total American workforce is those aged 55 and older. Statistics show that of those who work:

27% work because the money is ‘necessary to help pay the bills’,
19% work because the money ‘helps me grow or maintain my nest egg’,
17% work because the money ‘is a nice reward for working but is not necessary’ and
37% work because the money ‘will provide fun money used for discretionary purposes’.

In South Africa, working longer has many advantages, not least of which is that a regular salary ensures that medical scheme contributions are more affordable. People also want to remain productive and relevant in society and thus 65 is not really considered a “retirement age” anymore.

Second phase (about 70 to 80): This phase, which is usually associated with reasonable but declining health could be described as a ‘wind down period’. While some seniors may continue to lead active family / sporting / volunteer travel and hobby-filled lives, others will be compelled to slow down. US figures show that around 9% continue working, though it is often in a different and more enjoyable way than their core careers.

Third phase (about 80 and older): For many seniors, this is the time that long-term savings will really be necessary. There are no reliable statistics which show the inflation rate of frail care provision, but as it is personnel intensive, it is likely to be similar to medical and education inflation, both of which tend to be at least 2% higher than CPI.

As of 2017, the cost of specialist frail care facilities in Johannesburg ranges from R15 000 to R23 000 per month depending on the level of care required and whether or not one wants a private room. Assisted living in ones’ own home is also an option, but costs for 24-hour care will be similar.[/fusion_text][fusion_text]

So, what should one do?

About to retire?

A a ‘tactical asset allocation’ investment strategy will enable the retiree to stay one step ahead of inflation whilst avoiding risk. A financial advisor can help design a portfolio of investments that gives a spread of investments, that will include equities, bonds, alternative investments and annuities.

Already retired?

The financial advisor can also re-allocate savings to withstand inflation and low performance periods.
Retirees must try and supplement their pension with any extra income
Adopting a simple way of life and standard of living will help stretch ones’ savings and money.
One must also try and maintain a draw of 4% or less from a living annuity and restrict income escalations to inflation or less. This should result in the accumulated savings outliving the retiree!

There is no exact answer to how much must be saved to ensure a decent standard of living in retirement. Essentially, saving enough, infers providing enough capital to sustain ones’ life and quality of life after retirement.

At the Allan Gray Investment Summit – director Jeanette Marais said: A measurement tool to check if one is on track with retirement savings states – after 10 years one should have put away 2 annual salaries. After 20 years, this should be 5 annual salaries and after 30 years of work, 10 annual salaries should be saved.

Starting to save at a later stage means having to now make up for lost time by saving more or putting more capital away, explained Marais. Retirement capital often gets eroded when people change jobs, and if this happens one may have to start saving up for retirement all over again.[/fusion_text][fusion_text]

Progress on Phase 2 -the Oaks – Blocks 5,6,7 and 8

The Oaks Phase 2 is under our new contractor Orixs Construction Group. Work is progressing with the installation of windows, ceilings, upstairs kitchen, tiling has commenced and the 1^st coat of paint- the undercoat, going on Block 5,6,7.[/fusion_text][/fusion_builder_column][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”][fusion_images picture_size=”auto” hover_type=”zoomin” autoplay=”yes” columns=”3″ column_spacing=”13″ scroll_items=”” show_nav=”yes” mouse_scroll=”yes” border=”yes” lightbox=”yes” class=”” id=””][fusion_image link=”” linktarget=”_self” image=”https://heritage-estate.co.za/wp-content/uploads/Progress-on-Phase-2-3.jpg” alt=””/][fusion_image link=”” linktarget=”_self” image=”https://heritage-estate.co.za/wp-content/uploads/Progress-on-Phase-2-4.jpg” alt=””/][fusion_image link=”” linktarget=”_self” image=”https://heritage-estate.co.za/wp-content/uploads/Progress-on-Phase-2.jpg” alt=””/][fusion_image link=”” linktarget=”_self” image=”https://heritage-estate.co.za/wp-content/uploads/Progress-on-Phase-2-2.jpg” alt=””/][fusion_image link=”” linktarget=”_self” image=”https://heritage-estate.co.za/wp-content/uploads/Gates-and-gatehouse.jpg” alt=””/][fusion_image link=”” linktarget=”_self” image=”https://heritage-estate.co.za/wp-content/uploads/Phase-3-levelling-is-continuing.jpg” alt=””/][/fusion_images][/fusion_builder_column][/fusion_builder_row][/fusion_builder_container][fusion_builder_container hundred_percent=”yes” overflow=”visible”][fusion_builder_row][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”][fusion_text]