Do You Have Enough?

Many people get close to retirement and start to consider—for the first time—whether they have enough money to retire.

For most, they will realise that their retirement savings are insufficient because they will not have saved enough capital to live off when they retire.

That is why it is crucial to start planning for retirement as early as possible in your working life.

At Veritas we have a simple, but very powerful approach to financial planning, called lifestyle financial planning.

Do I have Enough?

Many people mistakenly think retirement planning is all about having a Rand number, but we believe retirement is a life event, rather than an investment event.

Investment decisions around retirement should have started early in your working career, rather than a few months prior to your retirement date.  The other mistake that people make is thinking that the most important decision is choosing where to invest their pension benefit, but this is putting the cart before the horse.

Lifestyle

Have you considered what retirement will mean for you and your partner once you leave your job?

It is advisable to sit down and determine, with your spouse, the life you plan to lead as a couple once you retire. The more detail you go into, the better. This is not a quick talk that you can cover in one evening. It is so important to the success of your retirement, that we advise discussing it months, or even years, prior to your retirement date.

Whatever activities you choose, you can factor in that you could be strong and healthy until about 80 years old. For some people that age will be 75 and for others 85, but after that most retirees are less active and travel a lot less, if at all.

Here are some of the bigger questions around lifestyle and finances to consider to help you prepare for retirement:

• When will you retire?
• What will your monthly living costs be once you retire?
• Do you have plans to travel and if so, where to and how often?
• What car will you and your partner drive and do you plan to buy more cars after you have retired?
• Will you continue to live in your family home, or do you plan to downscale?
• Will you be paying for your children’s education or assisting them financially in any other way after you retire.
• Will your mortgage bond be settled by the time you retire?
• Are there any upcoming family weddings or other events to pay for?
• Do you plan to pay for your grandchildren’s education?

What is your Real Enemy?

Many people think that the threat to their retirement plans are short term losses on their investments (volatility), investment fees and tax. While these are factors to consider, it is important to note that the single biggest risk you face in retirement is inflation, which is essentially the loss of your purchasing power.

The reason that inflation is such a big risk is that you may not have the ability to drive up your savings pool, without further income once you have retired.

Once you have defined your retirement lifestyle, we, as financial planners, use a financial planning tool to work out what rate of return you need to earn on your money. For many it will show that their desired lifestyles are unachievable and that they will run out of money during retirement.

The rate of return we calculate for you will show you how long your money will last you into retirement and, importantly, how much your investments need to deliver to beat inflation.

Where to invest your Retirement Savings

Once we have identified the rate of return you need, it will guide us as to what investments to include in your portfolio.  In simple terms, the higher the rate of return that you need above inflation, the more shares you need in your portfolio.

We will ensure that your investments will be well diversified across companies, asset classes (shares, bonds, property and government bonds), both locally and offshore. We also make use of different investment managers with different investment styles and include a mix of both actively managed and passively-managed funds when structuring your portfolio.

If you have saved diligently for a long time and live within your means, you will be able to get away with a lower rate of return—and fewer shares—on your retirement savings, to fund your life after retirement.

Gains and Losses

Before we invest your money, we will ensure that you are comfortable with the potential range of returns (gains and losses) that our recommended portfolio is likely to deliver.

As a rule of thumb, a higher rate of return means greater gains when the markets are performing well, but also greater losses in market downturns.

We will show you the potential impact on your portfolio when dramatic events take place around the world so that you can make an informed decision about what could happen to your portfolio in market dips.

You can expect some temporary losses even with a diversified portfolio, but if you stick to your investment plan, it is likely to rebound as market cycles turn back up over time.

If you are uncomfortable with that specific rate of return, because of the potential losses you could incur from time to time, you will have to modify your lifestyle goals. We will then redo the process until you are comfortable with the range of returns that your target rate will deliver.

In Summary

The starting point to answering the question “Do I have Enough” is to plan your retirement lifestyle with the input of your spouse.

The earlier you prepare for retirement, the more successful your retirement is likely to be.

We will then help you figure out if you have sufficient retirement capital to retire now, or to delay your retirement date. Another option is to find additional sources of income such as consulting work.

As a last resort, you may also have to consider adapting your lifestyle goals to more modest levels.

You determine the life you want to lead when you retire and lifestyle financial planning allows you to understand and control your financial affairs.

Lifestyle financial planning creates a space where money and life meet and we can show you how!