Retirement Planning| Investments

Retirement Planning in South Africa

While our previous article looked at Tax benefits on retirement savings this posts deals with the fundamentals of retirement planning and thereby provides you with some tips and understanding of the retirement planning process.

Retirement planning takes discipline and dedication and Individual investors can sometime be over whelmed and confused by the amount of Investment opportunities there are when it comes to retirement. According to Andre Bottger, a Financial Advisor at Liberty Life, Individuals need to concentrate on the retirement Investment basics to ensure that they are getting their Retirement and financial planning right. Here are some retirements planning pointers:

1. Save as Much as you can as soon as you can.

Although it is never too late to start saving for your retirement, the soon you start saving the more time your money has to grow. By delaying saving for retirement can impact your long term investment goals. The power of compound interest remains the best way to accumulate real wealth, and the sooner you start saving for your retirement the larger your lump sum investment will be when you want to retire.

2. Understand your Appetite for Risk:

All investments are risky and the Investor needs to asses these risk relative retirement plan. Younger people may be a larger appetite for risk while the nearer you are to retirement age the more conservative one needs to be regarding your investment portfolio choices. Remember that equity markets can so through correctional cycles which may affect your investment value adversely. Remember to stick to your longer term investment plan and not to panic in the short term.

Only by understanding the risk factors within your portfolio, relative to your life stages, can you make informed decisions as to which kinds of assets allocation your portfolio needs.

3. Realistic Return Expectations:

You need to be realistic about your retirement return expectations. Asses the progress of your portfolio each year and speak to your Financial advisor about which way the market are going and weather to make changes. Also plan you retirement income based on your expenses and needs. Be honest about how much you want to live on and what it will cost. Based on this Future financial needs calculate much you need to save for your retirement goals. When looking to invest in a Collective investment Schemes, generally a balanced equity portfolio will give you a return of inflation plus 5% over a period of 15- 20 years.

4. Diversity you Investment portfolio:

A diversify your investment portfolio will give you the best performance over the longer term. Diversification is a defensive strategy while will also help your portfolio’s performance during a depressed market while reducing volatility.

5. Have a longer term framework in mind:

Timing the market is difficult even for professional as so many factors affect the market. Instead set an investment strategy which works in all market environments and one you can stick to during the good and bad times. You need to preserve and grow your pension so as not to erode your saving. Preservation funds can help with this.

6. Taxes can save your Retirement Fund:

Taxes can be your Investment portfolio’s largest expense. Using strategies that defer income for as long as possible can make a substantial difference in the ultimate size of your portfolio. Government has given some great tax benefits to encourage people to save for retirement. Use them! The compounding impact of tax free returns on income and capital gains over 20 years is great and can make a difference to a more comfortable retirement.

To conclude; a good balanced fund will help you make the Investment process a simpler one by:

Starting young and the impact on the ability to save will be smaller.
Balanced gives you a good, professionally managed, diversified portfolio where the manager chooses the opportune time to go into the different asset classes
Over a 15 -20 year period, it should aim to give you a return of inflation plus 5%.
Use the tax benefits provided by government to enhance the ability to build a reasonable retirement amount as the compound impact on gross returns is huge.
Lastly, remember that you need to save 10 to 12 times your annual salary to retire comfortably. Will your pension fund alone get you there?”