Plan retirement seven years ahead

Planning for retirement is about making sure you continue to achieve your goals at a different stage in your life. While a successful retirement obviously requires a lifetime of saving, or a sufficiently large lump sum built up through business or investm

In short, “the major decisions, education and plans for retirement all need to happen well in advance of your retirement date, ideally seven years before your expected last day at work” says Linda Sherlock, Head of Advisory, Alexander Forbes Financial Services.

Then, once people have decided what they want their retirement to look like, and what this will take to achieve, they need to educate themselves on the options most suited to ensuring they achieve their retirement goals, given their specific circumstances.

Getting this right requires that retirees educate themselves to ensure their retirement product choice is going to protect their retirement income from; longevity, inflation, consumption and market risk.

This can only be achieved by retirees deciding, well in advance of retirement, what their post-retirement goals will be, the budgets these will require and then “educating themselves on their options – while planning the conversion of their savings, provident, pension or employee funds into the retirement package that will deliver these goals” says Sherlock.

For example, depending on retirement goals, members who will purchase a fixed or with-profit annuity at retirement should reduce their exposure to the market, increasing cash or bond exposure. Those targeting a living annuity, on the other hand, need to maintain market exposure so that they don’t have to buy back into the market at retirement. Those with choices within their employer pension or provident fund should make use of the investment options available in the years preceding retirement to align their portfolios with their post retirement strategy requirements.

“This requires active participation, discussion and understanding of what is available in your employer fund, and how this can be aligned to your desired post-retirement product solution” says Sherlock.

While annuity choice - the flexibility, cost and suitability of different annuity options - is the final step, this needs to be informed by tax, emergency fund and medical aid planning along with car replacement, housing and monthly budget needs to name but a few considerations.

As such, a big part of understanding and successfully planning retirement is education. What most people don’t realise is that “the retirement education and decision making process needs to start way ahead of retirement if people are going to achieve and maintain the lifestyles they require in retirement” says Sherlock.

Certainly, “the more we encourage and help people to see their pre and post retirement lives as part of the same continuum – and then put advanced plans in place to align the two accordingly – the more we see people achieve a satisfactory and sustainable standard of living in retirement” concludes Sherlock.