Retirement Planning

Retirement Planning has become one the greatest financial challenges of our time.  On the one hand we have investment returns that constantly seem to be dropping and on the other hand we have to deal with early retirement, retrenchments, high medical costs and longevity.  Retirees are literally being squeezed from both sides.  This is exactly why such a small percentage of our citizens can really afford to retire comfortably.

At retirement all of your Pension and Retirement Annuity proceeds can be combined into an Annuity that would pay an income for the remainder of your life.  If you use a Living Annuity, your pension fund could potentially be passed down from one generation to the next.  The principle objective however is to provide you with a comfortable level of income for as long as possible. 

Inflation is one of the major threats to your income.  With careful planning it is possible to obtain the most effective structure for your retirement investments.

The advisors at Incresco Wealth have years of experience in structuring and managing your retirement investments.  We guide our clients step-by-step and provide more than one option for administration and fund management.

Guidelines when approaching retirement

1.Think carefully before making a switch to a more conservative or cash portfolio. Planning is everything.  Remember that the bulk of the funds will be re-invested at retirement into a Living Annuity that would be running for the remainder of your life and beyond!  You cannot afford to have too little growth exposure.  On the other hand your need for cash and income need to be secure for up to 3 years.  It might be sensible to invest this portion into low volatility investments and let the balance remain in a growth portfolio.

2. Build up some extra savings.  At retirement you and your dependants might have some expectations that result in additional financial expense….taking that big holiday, or buying that vintage car.  With careful planning these expenses can be covered without making a huge dent in your retirement funds.  The first step is to bring your monthly budget under control.  Then start calculating the future cost of the planned expense.  We can assist you to calculate the monthly amount that you need to save in order to meet your target.  The type of investments you can make will be largely determined by the time horizon you have available.

3. Let your hobby work for you.    Being retired does not mean that you will do "nothing". Some of the happiest retirees are involved in some hobby or business.  The best is to let your personal interests or experience guide you towards some form of retirement "employment".  Beware of investing too much capital into "new ventures".  The main aim is to use your skills and your time while doing something you like, and doing that at your own pace!

4. Consolidate your investment administration.  Investment Administration can be one of the most expensive aspects of your financial portfolio.  While the administration function is very important, it remain an expense and does not directly contribute to investment return.  It will be worth your while to do some research on the various ways to administrate your investments.  The aim is to have an overall view of your portfolio that can be updated on a regular basis.  This puts you in control and allows you to make intelligent decisions about your investments.  Often investment platforms charge a fee based on a sliding scale.  With this in mind it makes sense to consolidate your funds with one administrator while still having the benefit of diversification between different fund managers and investment markets.

5. Get good advice.  A qualified and experienced advisor will add many happy years to your retirement.  Ask your advisor the following questions:

Are you registered with the Financial Services Board?  (this is a legal requirement)
Which investment products are you licensed advising on?
What is your qualifications and experience?
How do you select the Administrator and the Fund Managers for investments?
How often do you review client portfolios?
Get a quotation and a proposal in writing before committing to an advisor.
Get a full breakdown of all fees and charges.

Some common pitfalls to avoid when you are saving towards retirement:

I belong to the company pension / provident fund, so I will be OK at retirement…WRONG.  Most modern retirement funds have adopted the format of "Fixed contribution schemes".  That means that the company's only obligation is to see that you make a contribution.  The company do not take responsibility for the investment performance or to ensure that you will receive a reasonable "pension" after retirement.  In reality very few people can make a comfortable living on their pension alone…

When changing jobs, it is a good idea to cash in your retirement fund to pay off some debt…WRONG.  While it is normally considered a good idea to pay off your debts as soon as possible, there is some risk here.   The first risk is that you actually start funding your current lifestyle with your retirement savings.  This is like borrowing from your own future in order to have more of the "luxuries" that everybody else seems to have.  The second risk is that you are missing out on much better returns elsewhere in the markets.  With interest rates being historically low, there is some "good debt" like your bond on your house.  Returns on investment markets typically and over the longer term exceed the rate of interest you pay on your bond.

I have my own business and I would rather invest my savings back into the business where I can get a higher return…WRONG.  If you are serious about investing for your future you will separate your business and your savings by using a vehicle such as a Retirement Annuity.  So many businesses fail and when you put all your eggs in one basket you run a considerable risk of losing everything you have worked for.  Diversification is one of the first principles of successful investment planning.  You can use diversification to increase your investment returns and to lower your risk.

Taking out a Retirement Annuity is expensive and the cost structure is so high that it is not worth it…WRONG.  Modern financial product providers offer a "Pure Investment" option for your savings.  These types of products are normally linked to unit trusts, and they can be extremely cost-effective.  Furthermore your RA contributions are tax deductible up to a certain level.  Call us for personalised advice on this topic.