Retirement -- Laying the golden egg for years to come

Retirement -- what do YOU want?

Most over 50s want far more out of life than retiring with a gold watch, a pension and a quiet existence.

Today’s 50-year-old is more likely to be running marathons than playing bowls. It’s not surprising that many retirees are rethinking retirement at 55 or 60.

Since 1946 our life expectancy has grown by 10% and the actuaries tell us that at least one partner in 75% of couples is going to live beyond 90.

In the developed world the fastest-growing population segment in the next 15 years is likely to be people aged 80 or more.

No matter how much you are looking forward to stopping work, 20 years or more is a long time to spend in retirement. It’s a long time in terms of what you are going to do with yourself - and having to pay for it.

I find that many affluent clients in their late 40s and 50s are moving away from the old concept of retirement. They are moving slowly into a different role and changing the type of work they are doing, rather than getting out of the workplace completely. They are content to start cutting back on their work from 55, but expect to keep working into their 70s.

Not all of my clients are in the position of being able to stagger their retirement programme. It is important, however, for those nearing retirement to understand what they are up against. They are going to live longer and they are going to continue spending money - and inflation-beating returns are critical.

Increasingly, longevity means that retirees’ financial wellbeing later in life depends solely on achieving strong investment returns.

With the three-year bull market run on the JSE, South African investors are starting to expect a return of 15% above inflation.

Our research has shown that this is highly unlikely to continue as a real return of 8% above inflation in a “pure equity” (share) portfolio is the maximum forecasted long- term norm. An equity portfolio would carry too high a degree of risk for retirees.

Take the case of someone at age 65 with a R3m nest egg. How long will this investment last if there is a need to draw R200 000 a year after tax, increasing every year by inflation?

Two different investment strategies are used. The one strategy is to invest purely in cash.

The other portfolio involves more risk, targeting a return of inflation plus 4% a year.

In the first instance, the nest egg is projected to run out at about age 77 or 78.

The targeted portfolio, on the other hand, could be expected to last beyond the age of 90.

With us living longer and our investments needing to keep pace with our lifestyles, isn’t it time you had a date with your real meal ticket for your golden years? Yes, a financial plan will plot a path that can guide you through all the investment obstacles to allow you to take control and make an informed decision about your investment strategy.

Should you require an investment professional working together with you to assist in developing your long-term goals, visit the website of the FPI on www.fpi.co.za to select an appropriate financial planner with a CFP qualification.

Ken Stuart B Com, CFP, is an investment planner with Netto Financial Services