Futureproof your retirement - a survival guide

Duane Naicker
Duane Naicker

I don’t have a crystal ball that can accurately predict market turmoil. No one does. What we can, however, do is build a retirement portfolio that is robust enough to weather the storms that the future will bring.

If you're worried about how the market will affect your ability to retire in comfort, I suggest taking these basic precautions to make sure your savings outlive you.

Strive for portfolio precision

Market volatility is normal but sometimes a quake hits, usually followed by a tsunami of disaster. 

Most recently in South Africa, Government Employee Pension Fund lost billions in a matter of weeks due to Steinhoff's spectacular fall from grace, and some South Africans lost huge chunks of their retirement. In the wake of the scandal, investors are asking themselves whether there is any way to spot signs that a disaster is imminent.

My answer is to be proactive and vigilant. Shore up your portfolio by having diversified investments to protect against sudden losses, and be wary of a sudden goldrush. Don't be swayed by charismatic CEOs or the promise of unfettered growth.

If you're actively investing in stocks then, you should be disciplined enough to pick businesses that have long term growth prospects and consider carefully before risking money on short-term trading. Passive investment instruments such as index funds can also help you to diversify and ride out the turbulence of the market without having to watch your investments like a hawk.

Get the lowdown on your drawdown

It's simple maths: the less you draw from your retirement, the longer your savings will last. The traditional rule of thumb is that drawing 4% of your total retirement savings a year, adjusting each year for inflation, will make sure that your retirement savings will last for 30 years.

But this number presumes no unexpected expenditures over a 30-year period, which I realise is an unrealistic presumption even at the best of times, and market fluctuations can mean that many people need to withdraw a bigger percentage each year to meet their needs.

If you’re in the retirement stage already, try not to increase your spend yearly to keep pace with inflation and reduce your costs as much as you can. Each rand you save will effectively extend your retirement. 

Manage your risk

Some people choose to forgo the stress of managing their retirements altogether and purchase an annuity that will provide a stable income each month. This allows for a certain amount of stability but is also inflexible and often limits your ability to adjust your income as time passes.

One strategy is to purchase an annuity that will cover your most basic needs and then allocate the rest of your money to other investments that have greater growth potential. Covering your bases gives you the flexibility of more options with fewer risks.

Keep some cash

The problem with retiring during volatile times is that you don't have the luxury of waiting the market out. I can shout from the rooftops that the market will correct but this is little comfort if you need money now.

Having a cash fund that can sustain you during uncertain periods can help you to avoid killing the goose that lays the golden egg in order to survive. Keeping two years of living expenses in savings will allow you to be nimble enough to dodge market dips.

This is where an investment vehicle like a Tax Free Savings Account (TFSA) can really come in handy. Not only is this a tax-free investment (up to a maximum R33 000 per year and a lifetime contribution limit of R500 000), but you’re able to withdraw at any time – bar fixed deposit accounts.

So if you start putting your annual tax-free allowance into a TFSA now, that could amount to a tidy sum for a much-needed retirement cash fund, especially if your TFSA investment performs well over time. Just remember that you need to use your tax-free allowance before the February 28th tax season deadline each year.

Know that delays pay

Delays are terrible when it comes to trains and aeroplanes, but a real benefit when it comes to retirement. Even if you're not at retirement age yet, proper retirement planning includes thinking about adjusting your work life so that you can continue to draw an income for as long as possible.

The longer you can delay taking your retirement the longer your savings will last, and a delay of even a few years can make a significant difference to the overall health of your portfolio.

Talk to the pros

It's healthy to be skeptical of those who want to manage your money. There are a plethora of untrained, uncertified and unscrupulous people who don't hold your lifelong savings in the same high regard as you do.

But everybody needs advice, and legitimate financial advisors can help you to organise your finances in a way that ensures longevity. If you're looking for a snapshot of your financial situation then an online tool, like Sygnia's RoboAdvisor, is a great way to help you to evaluate your options. 

Put your RA through a stress test

You might be putting money into a retirement annuity (RA) but you can't just proceed on auto-pilot. You should be analysing and interrogating what you're doing. You can't let your retirement plan off easy: you have to sit it down in a steel chair, shine a bright light in its eyes and shout questions at it in an Eastern European accent: what will your income needs be when you retire? Have you factored in inflation, increased expenditures for things like medical needs?

Part of that interrogation should always be knowing exactly what fees you’re paying, and what you’re getting in return.  

According to National Treasury, high fees can cost you up to 60% of your retirement investment over 40 years. It’s a big deal, and that’s why we always advocate low fees, starting at 0.4%.

The same applies to "performance fees", which are often charged on top of the basic fees. If the fund is outperforming, then the fee may be worth it. But if you weigh up your returns after all fees and the term "performance” becomes a cruel joke, then it may be time to rethink that particular investment.

Duane Naicker is Head of Sygnia’s SURF (Sygnia Umbrella Retirement Fund).

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