By: By René Grobler, Head of Investec Cash Investments
Retirement Month: Time to assess, review and rethink a retirement savings plan
In October, the focus is firmly on retirement and, as a theme, it draws our attention to the need to plan and save for the day we retire. I think people have heard enough preaching about the fact that they are not saving enough.
For me, it is more about empowering people to make conscious and positive decisions about their future. It is about maintaining independence as a retiree and having the money and accumulating the resources to pursue goals and aspirations in your later years.
In fact, our perceptions of retirement have changed significantly in the last decade or so. As a life stage, retirement doesn’t have to be a full-stop but rather the start of another exciting chapter. Many South Africans are enjoying active, vital lives after retirement – whether this is starting a new business, or investing or travelling more.
However, as a life stage or a milestone, retirement does require some planning. Most of us do not wish to rely on our adult children or the state for our later years. Which is why we are encouraged to start thinking about the day we will not be earning a regular monthly salary, and replacing that with an annuity income to cover monthly expenses.
Of course, there are a few investment choices that can create this new income stream, which may include rental properties, unit trusts, or provident fund and income-wrapped retirement products. It is important to investigate and identify the right product for you, your anticipated needs and other factors, this is where the skills of a professional financial advisor can add significant value. However, what most retirees do not want to do is dig into their capital and, if they do, they want a view of how any investment will generate an annuity income.
What is also extremely important to retirees is certainty – and that is where cash can be an amazing asset class for retirees, because your capital is guaranteed and your income stream is very predictable. For example, on a fixed interest account, you will have the consistency of that interest paid out to you monthly.
I must concede that many people approaching retirement age in South Africa do so with some trepidation. Taking a broader view of South Africa’s economic and political landscape – with business confidence low as we come out of a technical recession, and a lower interest rate cycle – there is a sense of anxiety.
In times of anxiety people often look for a safe haven for their investments and cash is often identified as safer, more reliable option when compared to other volatile options, which rely on equities or dividends. And even though we are seeing lower interest rates, these have not dropped on too steep a curve.
In a more volatile political or economic environment, knowing where your income will be coming from is even more important. Rather than focusing on the uncertainty, seize the opportunity to reassess your retirement plan and start making conscious and positive decisions about the future. While it is always a good idea to diversify your savings and investment portfolio, cash should not be dismissed or overlooked in the current climate.
Not all deposits are created equal, and it is worth your time to shop around and compare different products and banks. You should factor in brand security, liquidity needs and products or service providers that offer you the best rate or a pensioner’s rate. While equities will generally outperform cash in the long term, cash is attractive for the short-term needs of a retiree as it offers more stability and peace of mind.
I believe the topic of Retirement Month is relevant and timely, as it sparks conversations and helps us think about the future. Regardless of your age or your income level, you should be thinking about maximising your savings and making the most of it.