Wealth Advisory Newsletter

Timeless retirement planning principles

For some of my clients, not living the nine-to-five rat race is something they look forward to. But for others, they are filled with a sense of dread. This is not because they feel that they do not have adequate financial provision for a comfortable retirement, but because they do not feel mentally and emotionally prepared for it. 

I have come to realise that people often make the following mistakes when planning for retirement, leading to them being filled with a sense of dread. They are: 

1. Often, we fail to continue to monitor whether our retirement plan is still relevant and on track. Retirement planning is not a once-off event. It should be considered and monitored regularly, at least once a year. I find it helps to show my clients how that plan has evolved, to see if their drawings and their capital (investment) has grown or underperformed. And, if they have done well, they will have a better plan with more extended longevity as time goes on.
2. The second mistake that is often made, is the overestimation of the value of downsizing one’s home at retirement. Many believe their current home is worth a large sum of money, and when they retire, they will sell it and use the proceeds to supplement their income. This is not unreasonable, but I find people often overestimate the value of what their house will be worth in the future and do not consider what the setup costs will be of a new home, especially when moving into a security complex where the home prices are higher and there are additional fees to pay, such as levies.
3. There is often a disconnect between what people want for their retirement and what the reality will be. Retirees tend to have considerably more time on their hands with a need to fill it with leisure activities. It is an opportune time to do what you have always wanted to do, whether it is reducing your handicap or travelling with your partner. There are, however, costs involved with this, and lifestyle discussions must be done right at the beginning of your planning stage to allow for this.
4. Another easily avoidable mistake is failing to assess your financial needs after you retire. It would be best if you continue to monitor your drawdowns. Budgeting remains a crucial ingredient of a successful retirement. You must ensure that there is more coming in than what is going out every month. 

Generally, the aim is to retire with enough money to provide you with a monthly income equal to 75% of the final salary you earn. The COVID-19 pandemic, stock market volatility, job losses and political uncertainties have many clients concerned about their retirement provision. I have instances where professional clients are considering pushing out their retirement date, and although this is prudent, one must consider that events are ever-changing. Nothing is ever cast in stone, and that is why continuous conversations are so important. This is especially important because people are generally living longer with a better understanding of healthy living and eating, and the importance of exercise is a high priority in educated households. Also, we have better healthcare.

My words of advice to my clients are the following three points I think they should abide by:

1. Review your portfolio, retirement and discretionary, on an annual basis.

• Clients nearing retirement should consider a gradual reduction of risk on their overall portfolio. Taking income from the portfolio will mean that a massive correction on, for instance, the stock exchange could put immense detrimental pressure on their ability to draw the same anticipated income and increasing that income with inflation on an annual basis.
• Clients in retirement, who have experienced a decline in their portfolios and are concerned, should consider how much income they need in the next year and maybe try and limit the drawing for a while – at least until asset values recover. But then it is also imperative to make the adjustment and reduce the overall risk so that the event does not repeat itself.
• Clients with discretionary investments could consider spreading risk with different investment vehicles, such as offshore exposure, local equity exposure, or property, but one should always consider the overall risk capacity.
• Tax and tax reduction should also be one of the primary considerations, both while saving and when in retirement. A good spread of discretionary and compulsory is generally speaking a good mix because you get to use all the benefits that SARS offers in the form of rebates and lower tax structures found in capital gains, interest, and dividends. Tax should always be considered on an individual basis as there is no one size fits all. 

2. Do not react in emotion. Speak to your financial adviser or wealth manager. 

Our job is to remove the emotions that come with periods of massive growth or recessions. We offer a well-balanced and unbiased opinion on stock market fluctuations, countering the sensational strategies of flash articles in the media. Invesco’s assessment of prior bear markets highlighted that the average bear market since 1957 had lasted just less than 12 months, with the average loss being 34%. At the outset of the Great Depression in 1929, it took 30 days for US stocks to fall 20% and enter a bear market. In contrast, this recent downturn took only 16 days – the fastest bear market in the history of the S&P 500. The calm investor that stays the course will be rewarded over the long term.

3. ABS – Always Be Saving!

Retirement planning is a multistep process that evolves over time. Being financially ready for retirement is the cornerstone, but my conversations with clients also include their hopes, fears, dreams, goals and aspirations. How they will fill their nine-to-five. What will give them meaning and purpose? At PPS, we believe that we are professionals, helping our professional members live the life they want to lead. That, very much, includes retirement. Your wealth manager is your financial partner to help guide you every step of the journey.

By Jaco Prinsloo, Wealth Manager at PPS Wealth Advisory

PPS Wealth Advisory | Beyond Wealth. 

Kindly note that this article does not constitute financial advice; the information provided is purely informational. In terms of the Financial Advisory and Intermediary Services Act, an FSP should not provide advice to investors without an appropriate risk analysis and thorough examination of a client’s particular financial situation. The information, opinions and any communication from PPS Insurance, whether written, oral or implied are expressed in good faith and not intended as investment advice, neither do they constitute an offer or solicitation in any manner. PPS is a licensed Insurer and authorised Financial Services Provider (FSP 1044).