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Aligning your savings plan to your life stage

27 July 2020 Jan van der Merwe, Head of Actuarial and Product at PSG Wealth

In the middle of a crisis it can be difficult to quiet the storm. However, it is important to keep sight of your long-term goals and ensure that your financial plan will continue to meet your needs appropriately as you move through life.

The life stage investment model: is it just for retirement savings?
Life stage investment models are usually referenced within the context of planning for retirement savings, looking at the stages that you go through as a build-up to your retirement. Although this is useful and important, it is also imperative to think about your life stages as a continuum that flows past the point of retirement.

Remember the basics in every life stage
First and foremost, create a budget and stick to it. Your responsibilities and dependants will change as you get older, and it is important to control your debt. When debt is unavoidable, be sure to service it on a regular basis.

Secondly, be sure to take advantage of tax incentives, especially for your retirement savings and tax-free investment products. Many investors miss out on benefits that are freely available and don’t realise that it can make a significant difference to their financial well-being in the long run.

Lastly, remember that your savings and investment products should always be underpinned by the appropriate protection at every life stage. These include:
• Medical aid throughout your life
• Death, disability and illness cover – especially when you have dependants
• Having an adequate will in place

The table below provides an overview of products that are likely to be suitable at different life stages.

Factors to keep in mind

Possible product building blocks

Underlying investments

Starting out your career: 23 – 30

  • You likely start out young and single.
  • You might find a partner and get married during this time.
  • Time is on your side: start saving now.
  • Retirement annuity (RA)
  • Tax Free Investment Plan (TFIP)
  • Emergency savings or Voluntary Investment Plan (VIP)
  • You should maximise your investments in growth assets like equities.
  • Younger people can afford to, and should, take on risk in their investment strategy; this applies to both your RA and TFIP.
  • Your emergency savings can be invested in a more balanced fashion, given that these funds might be needed on short-term notice.

The middle years – part 1: 31 to 50

  • You may buy your first house, which means you will create debt.
  • You may have children and will need to start saving for their education.
  • RA
  • TFIP
  • Emergency savings and/or a VIP to save for a specific short-term goal, like an overseas holiday
  • Share portfolio: a diversified portfolio that includes both offshore and local shares
  • Have a significant proportion of your investments exposed to growth assets.
  • Consideration can be given to a diversified share portfolio, including both offshore and local shares.

The middle years – part 2: 51 to 65

  • Adult children start leaving home.
  • You will likely have settled or be close to settling your home loan.
  • RA
  • TFIP
  • Emergency savings and/or a VIP to save for a specific short-term goal, like an overseas holiday
  • Share portfolio: a diversified portfolio that includes both offshore and local shares
  • Continue to have a significant proportion of your investments exposed to growth assets.
  • Consideration can be given to a diversified share portfolio, including both offshore and local shares.

In retirement

  • You will spend many years in retirement.
  • You might want to travel more or enjoy your other hobbies.
  • Living annuities: managed with the help of an adviser, and keeping your drawdown rate low.
  • Consider some form of annuity that provides a minimum guarantee for life.
  • Reduce the risk of outliving your savings by avoiding investing too conservatively if you have selected a living annuity.

Remember that changes and life challenges are part of the journey, and don’t fall into the trap of making short-term decisions based on emotional factors. Always think long-term and stick to your plan. And if you need help constructing a financial plan that is appropriate for your unique needs, a financial adviser will be able to assist.

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