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How retirees benefit from many eggs in multiple baskets

19 April 2021 Glacier Financial Solutions

Income stream management in retirement has been Glacier’s focus for a number of years. Linda Blom, Business Development Manager at Glacier by Sanlam, unpacks what this means, some of the roadblocks to retiring with confidence, and what you need to do to get on track.

The retirement conundrum
We start saving too late; we save too little; we spend what we can access when leaving employment; we retire with debt; we don’t review our retirement savings periodically and we don’t get advice from a professional financial planner. In one sentence Linda sums up the reasons so many people face their retirement with anxiety and dread. She offers the following facts to consider that tell a bleak story:

• Half of South African retirees can’t make ends meet.
• Half of retirees have adult dependants to support.
• More than half don’t have funds saved for a rainy day.
• One in three can’t cover medical expenses.
• One in three retirees has debt to cover after they retire.

Added to this conundrum, says Linda, are the risks at retirement. She lists them as follows:

• Sequence risk – withdrawing from your retirement account at a time when the markets are not doing well and that could damage your overall return;
• Longevity risk – the risk of living too long (and consequently outliving your retirement capital);
• Investment risk – the risk of negative performance in the markets; and
• Inflation risk – the risk that your income doesn’t keep up with inflation.

Multiple eggs, many baskets
With this backdrop, there are many important, complex financial decisions to make when you retire. There are many options available to provide for your retirement, and there really is no one-size-fits-all solution. Combining solutions could provide the best answer to ensure sustainable retirement income.

However, choosing solutions and combining them for best effect, is tricky and has to take into account many factors that are unique to the person for whom the plan is being designed. The image below outlines the solutions available that can be combined, and their features that are taken into account to tailor a plan for your unique needs and lifestyle.

Here are some of Linda’s tips for people facing retirement, to help ease some of the anxiety you may be feeling:

1. It really isn’t too late to plan. You may think you’ve left it too late, but putting a plan into motion, at any time, can only improve your financial situation down the line.
2. Don’t take the journey alone – appoint an appropriately authorised financial adviser if you don’t already have one. They have the tools and know-how to help you make better decisions as they are not emotionally involved in your finances. Even skilled professionals in financial services call upon the expertise of an adviser to help navigate the tricky journey of financial planning.
3. Don’t put all your eggs in one basket. Even though we’re currently in a scenario of low inflation and low interest rates, this might not be the case over the long term. A combination of retirement solutions gives you the flexibility to benefit from different market circumstances.
4. Choose your solutions provider wisely. The brand behind the solution makes a big difference to your financial planning process and their track record cannot be underestimated. Your financial planner will help you choose a provider that has a platform that enables easy administration, like changes and switches.
5. Drown out the noise. It’s easy to succumb to media hype or even the seemingly knowledgeable opinions of your family members or friends. However, it is best to leave expert advice to authorised experts. They are trained to take your unique lifestyle and needs into account – and their advice is based on solid research and investment industry insight.

Glacier Financial Solutions (Pty) Ltd and Sanlam Life Insurance Ltd are licensed financial services providers.

The Glacier Investment-Linked Living Annuity (ILLA) and Glacier Investment-Linked Lifetime Income Plan (ILLI) are underwritten by Sanlam Life Insurance Ltd and administered by Glacier Financial Solutions (Pty) Ltd.

Quick Polls

QUESTION

Financial behaviour experts suggest that today’s risk modelling methodologies ignore your client’s emotional ability / behavioural capacity. What are your thoughts on spicing up risk profiling tools to make allowance for your client’s financial behaviours

ANSWER

[a] Bring it on; my client’s make too many irrational financial decisions
[b] Existing risk profiling tools are adequate
[c] Risk profiling tools should be based on the model / rational client
[d] The perfect risk profiling tool is science fiction
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