The need for a realistic savings philosophy in the modern investment climate

According to recent research that Momentum conducted among consumers, most people realise that they should save for retirement. What is holding them back are high levels of debt, which directly affects their ability to save, but more importantly, their lack of access to appropriate information and knowledge on where to start and how to invest their savings optimally.

The answer seems simple: we need to coach our clients about the advantages of realistic retirement planning to enable them to make informed decisions and wise choices.

However, in practice and in a nutshell, a comfortable retirement requires a changed client savings mindset. Ideally you should not base your planning on what your clients think they can afford to invest or save, but rather on what they need to invest. Every budget is different, but once your client base understands the basic principles of careful planning, they will want to find available cash to put away. We know that even if they start with a small amount, they can always increase it over time and slowly build their investment capacity. The bottom line is that the foundation of any successful retirement plan is for clients to know their individual desired income and capital needs upon retirement.

‘Saving events’ like retirement annuïties season in February and National Savings Month in July, when there is a particular focus on retirement planning and saving, aim to help foster a culture of savings among all South Africans. They provide you with an ideal opportunity to have meaningful discussions with clients around their savings needs and goals.

We should all support such initiatives that encourage people to take charge of their own financial future, especially when it deals with the longer term savings need of most South Africans: to provide for a sustainable retirement. Ideally this should take priority in any personal financial plan.

It is essential to make your clients’ retirement goals tangible by calculating how much money they are likely to need by the time they retire to fund their post-retirement living expenses. You can then determine and effectively close the gap between their existing provision and their goal, based on your clients’ financial means and the time they have at their disposal. In addition, monitoring their progress over time will make sure that they

reach their goals, making the necessary adjustments when they need them.

There is no quick fix. It is a process of setting realistic goals, crafting an equally realistic plan to achieve this, and then sticking to it.

Time in the market is your friend, other than timing the market. It is very important that your clients understand the power of compound growth and why they must give their investment time to make full use of this wonder. Exercising patience, sticking to an investment strategy, and planning through ups and downs for as long as possible is what it will take.

In fact, the major destroyer of investment value is people’s own emotions that, more often than not, lead to irrational investment decisions.

Your ability to help your clients manage their emotions when it comes to their investment decisions may prove to be very valuable in turbulent times.

Just as you do not have to be a mechanical engineer to travel successfully on the Gautrain from point A to point B, so do your clients not have to be investment experts to successfully complete their financial wellness journey from their first pay cheque to retirement.

What they need to do is face the facts, decide how they want to live once they retire, and start working on a realistic plan, one they can stick to, based on their means and your sound financial advice.