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MIND THE GAP

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TO CLOSE THE GAP

Your financial adviser can use planning tools to calculate how much capital you will need at retirement to maintain your desired lifestyle for your expected lifetime. This depends on factors such as your current age, retirement savings, contributions, years to retirement and monthly living expenses (adjusted for inflation). Your savings adequacy will ultimately depend on how much capital you accumulate and the lifestyle you want in retirement, so it is important to get personalised advice.

A key consideration is whether you plan to draw down (decumulate) your savings over time or sustain your investments in real terms, which requires more capital. As a general guideline, aim for a 75% replacement ratio – meaning your post-retirement income should be around 75% of your final after-tax salary. This is typically sufficient because certain debts, taxes and work-related expenses decrease after retirement.

Reaching retirement age does not mean your skills, experience and professional network lose value – consider ways to monetise them, such as consulting (where appropriate and approved by your employer).

In these final years, focus on saving as much as possible and ensuring your investment strategy is well-suited to deliver optimal returns. Also, start planning for the type of annuity you will choose at retirement – living or life (guaranteed). Lastly, consider an active retirement approach, where you continue earning or delay withdrawals, allowing your savings more time to grow.

Many people underestimate the power of compound growth when saving for retirement. The key is to start early, save consistently, take appropriate investment risk and preserve your savings when changing jobs. It is also vital to consider your annuity choice (living or life) in the final seven to ten years before retirement, as this will shape your investment strategy.

Delaying retirement planning often leads to rushed, high-stakes decisions at an already emotional time. Common pitfalls include taking too little market risk, failing to plan for the transition from saving to drawing an income and underestimating how long your savings must last.

A successful retirement plan rests on two pillars: cashflows and market growth. Not saving enough or withdrawing funds early can severely reduce your retirement capital, while investing too conservatively too soon limits long-term growth potential from higher-risk asset classes that historically deliver superior returns.

The level of investment risk you can take near retirement depends largely on the type of annuity you plan to purchase and should be discussed with your financial adviser several years in advance. If you are opting for a life annuity, it is important to gradually reduce risk as you approach retirement. If you are choosing a living annuity, you can retain moderate risk since your money remains invested for 20 to 30 years post-retirement. Risk should not be avoided but managed through diversification and a sound drawdown strategy.

Regulation 28 and the Collective Investment Schemes Control Act (CISCA) impose diversification limits to reduce exposure to single assets or markets – principles that also apply to savings outside these structures. As retirement approaches, work with your adviser to ensure your portfolio strikes a balance between market participation and prudent caution. Consider real or absolute return investment strategies, which aim to deliver growth above inflation while limiting losses and ensure your investment horizon aligns with your retirement timeline.

You need to consider two key factors: the number of payslips you have left and the amount of each that is already committed. Every financial obligation – such as a car payment or school fees –  ties up part of your income for a set period. The aim is to reduce or end these commitments to free up more of your pay for retirement savings.

It is never too late to improve your retirement outlook. Starting late is still better than not starting at all. In your final working years, save as much as possible and explore opportunities for an active retirement to supplement your income. Be open to adjusting your lifestyle expectations to make your savings go further.