How to live like royalty in your retirement

Johannesburg  - With the cost-of-living crisis, it’s tempting to raid life savings for relief at the earliest opportunity. Indeed, the two-pot retirement system due to take effect in September has created a sense of anticipation among retirement fund members. However, most South Africans currently don’t have sufficient buffers to see them through post-retirement life.

Liberty research shows that many working South Africans only start to think about saving for retirement once they have passed the age of 40 and are therefore missing out on many years of compound growth and tax benefits that will help them build a safety net for their retirement. Only 31% of people between the ages of 30 and 35 have established a proper retirement savings plan, according to a 2022 Liberty research paper.

By following the right approach, anyone can retire comfortably. While many understand the importance of saving for retirement, building a portfolio may seem complicated, daunting and expensive, this doesn’t have to be the case.

Getting the basics right

Building up for a rewarding retirement starts with saving while you’re still working, the sooner the better.

Liberty Executive Wealth Adviser Carlo Gil points out that while it may feel challenging to save more in the present, this sacrifice leads to a smoother and more enjoyable retirement.

“Preparing and planning for retirement can significantly ease one's later years and prevent loved ones from being financially burdened. By saving more than what might seem necessary now, individuals can create a financial cushion that ensures a retirement with more possibilities,” he says.

Gil believes that at the saving stage, a person needs to consider different investment strategies for maximum growth, according to Gil, here are some of his favoured options.

• Create a diverse Investment Portfolio: Invest your savings in a diversified portfolio with a good split between different asset classes that have the potential for growth over time. This can help your capital grow even after retirement and increase your income post-retirement. At Liberty you can invest in a Retirement Annuity from R500 per month.
• At retirement consider purchasing an annuity, a financial product that provides regular payments over a specified period, often for the rest of your life. These can provide a steady income stream in retirement and can help your capital continue to grow.
• Explore other investment options such as unit trusts, endowments and tax-free savings products. These investments can provide additional income and growth potential.

When you get there

Nosipho Nhleko, Liberty Lead Specialist for Retail Investment Proposition Management, says at retirement you have the option of purchasing either a Life annuity or a Living annuity. With a Life annuity you have guaranteed income for life which can help you cover the basic necessities. However, it does not allow you the opportunity to grow your portfolio or leave any unused funds to your family when you pass away. With a Living annuity you have more flexibility in terms of the income you withdraw; you can continue growing your portfolio; and you can leave unused funds as part of an inheritance for your beneficiaries.

But this comes with risks and it is possible to run out of funds. To try and avoid this, “the two main things that need to be set correctly are your drawdown rate and the asset allocation of your portfolio.”

“Although legislation allows for drawdown rates of 2.5%-17.5%, a drawdown of over 5% is considered unsustainable in most cases. Higher exposure to equity increases the probability that your portfolio will grow, though it also increases risk. This is because equity markets are inherently volatile but have the reputation of outperforming other asset classes over the long run.  By lowering the drawdown rate and prudentially increasing equity exposure, you could achieve the scenario of a growing portfolio while withdrawing income from it,” she says.

Along with getting your calculations right, it’s worth looking at various products on the market which might help you maintain your retirement lifestyle in different circumstances.

“Ask your adviser to consider features such as Liberty’s High-Water Mark Guarantee, which puts a floor on potential portfolio losses. Additionally, our recently launched  Dynamic Living Annuity Income Solutions manage investments within a living annuity and provide both liquidity (in the form of income), and capital preservation (in the form of growth assets) in a single product - one that rebalances automatically when needed. These portfolio solutions give you and your adviser peace of mind that expert asset managers are helping you maintain the balance between growing your portfolio and withdrawing an adequate income.”

Making it all happen

Saving enough to have your dream retirement is possible. The key is to get the right advice from an accredited financial adviser who is knowledgeable and able to assess your particular circumstances, including your risk tolerance levels.

A financial adviser will guide you through suitable investment products, taking into account your unique personal circumstances.

Retirement is a very personal matter, and everyone's goals are different, but the important thing is to have the right plan in place to achieve those goals.