Forget Star Trek V – retirement is the final frontier

Gareth Stokes, FAnews Online Editor

Every journey has a beginning, middle and end. The successful retirement plan begins with the first pension fund deduction from your first pay cheque and hopefully ends with the purchase of an annuity age 65. According to John Williams of the Retirement P

Instead of being an enabler, an opportunity to explore personal creative talents or travel the world, retirement for the ill-prepared becomes a period of uncertainty and fear. Your daily routine is blighted by difficult questions: Have I made enough retirement provision? Will I outlast my money? Why didn’t I save more, earlier? What happens if I get sick? Can I afford the medical aid if it keeps escalating well in excess of inflation? Etc.

Can we ever save enough?

“For the vast majority of South Africans there will not be enough gold in the pot at the end of the retirement rainbow,” observes Williams. These individuals have limited choices. They can seek financial assistance from family members and friends; continue working into their late 60s and beyond, or – the brutal option – die younger... Although many scoff at the thought of working into the retirement window it’s certainly the best of the three options listed above.

Says Williams: “Many years ago, as a young impressionable man in the financial services industry, I remember attending a cocktail party to celebrate the retirement of one of the company top brass. He had faithfully served the company for fifty years (yes, fifty loyal years!). Six months later everybody was again gathered together for his funeral! The pension was hardly dented – and his wife was left with a paltry 50% of it.” This scenario plays out again and again, with slightly different “actors” and outcomes – but the possibility of saving for “nothing” certainly dissuades many from making the effort.

A new retirement strategy

The evidence points to a requirement to work more years before retiring. “Perhaps we should resign ourselves to carrying on in our jobs – or where possible changing jobs at age 65,” opines Williams. Before you dismiss this thought out of hand consider what’s been happening across the Euro-Zone as governments realise they haven’t a hope of meeting their social pension obligations. They’ve simply legislated what Williams is advocating. Instead of paying benefits from age-65 these governments have upped the age to 67 or 68-years.

Working through retirement has numerous socio-economic benefits too. One of the most valuable commodities in the workplace is experience and the extra measure of wisdom that comes with it. South Africa in particular could benefit if companies retained staff with critical skills a few years longer than initially planned. And the individual can benefits too, says Williams, because longevity is not built upon financial security or DNA, but on having a worthwhile purpose!

To retire right you must…

There are three factors that influence how much capital you can save through your working life. These are time, contribution size and return. The market return is largely out of your hands and you’ll have to leave it to your financial adviser / pension fund manager to make sure your asset allocation strategy is appropriate to yield the maximum risk-rated return over time. A well-managed portfolio should easily provide inflation-plus returns over periods spanning 20-years or more. The steps you should take to make a difference to your retirement pot are to increase your contribution and begin saving as early as possible. And there’s a fourth decision which rests firmly in your hands too – the decision to ALWAYS PRESERVE your retirement savings when presented with an opportunity to do so. You should resist the urge to withdraw your retirement savings, even though the law allows you to do so when you “resign” from the scheme due to a job change or retrenchment.

So there you have it. Start a saving for retirement as early as possible and diligently stick to your plan! You can tailor your monthly contributions in line with the capital you’re likely to require at retirement. Once you’ve taken care of the plan it’s time to take care of yourself. You should do everything possible to enhance your marketable value, by acquiring all the education and skill that you can over your working life. That’s the safety blanket (and your sanity) in the event your retirement provisioning is not quite up to scratch.

Editor’s thoughts: Retirement seems so simple when you lay things out step by step. Unfortunately life’s complications can scupper even the best laid plan. Imagine, for example, retiring form a defined contribution scheme at the peak of the 2008 stock market collapse! Are you planning to work into retirement – and will this decision be out of choice or a necessity? Add your comment below, or send it to gareth@fanews.co.za