Increasing longevity is one of many positive aspects to recent human development. It brings with it a change in the balance of working years versus years spent in retirement. This in turn implies a need to reconsider traditional calculations, to ensure you accumulate enough to support a prosperous and fulfilling life, from beginning to end.
The challenges on the retirement saving journey
Before retirement it can be difficult to save enough while managing living costs, given that one has to save enough to accommodate living longer through saving in assets that provide reasonable returns over the long-term.
Once retired, living costs still need to be maintained but the challenge becomes avoiding drawing too much income from your retirement savings, so you won’t outlive your capital.
Solutions are possible, if you plan properly
You could extend your working lifetime as much as possible, increase your contributions to retirement savings while investing in growth assets and you should put cover in place against risks that could deplete your savings (such as having short-term insurance and medical aid). In retirement, you should still get exposure to growth assets and could have some guaranteed income as part of your annuity
A longevity-proof retirement plan does not start at retirement – it begins in the early pre-retirement planning stages. Here are four factors to help you plan successfully:
1. Select the right products via a financial plan
The key to planning successfully for longevity is to ensure you use the available tools to do so smartly, and that each tool is matched to its intended purpose. Understand that your product toolkit is supported by smart investment choices (to ensure you attain growth at the right risk level for your needs). A well-structured and detailed financial plan can help you find the right combination and balance.
2. Start planning for longevity early in your pre-retirement years
It is important to use the pre-retirement years optimally to accumulate as much as possible. Maximising your retirement savings tax concessions at this stage is very important. Before retirement, the most likely product set includes at least a retirement savings product, supplemented by a tax-free savings plan, discretionary investments and risk cover.
3. Shift the focus to securing a sustainable income in retirement
Post-retirement your focus needs to shift to ensuring your investment is as long-lived as you are. Many investors are opting to combine a variety of post-retirement products to ensure they are positioned to meet the challenges of our current environment. Post-retirement, the appropriate product set will likely include an annuity product, invested in an appropriate manner, supplemented by longevity guarantees and continued investment in growth assets.
4. Planning for longevity requires a trusted partner
The additional complexity longevity introduces, means that the risks to not having a proper plan and strategy increases. If you are not equipped to do this yourself, be sure to enlist the help of a qualified financial adviser. Longevity does mean that you could have longer to save – but this will not help you unless you put your plan into action early on. When it comes to investment planning, you need to start planning in the pre-retirement phase to ensure the longevity of your capital. Partner with a trusted financial adviser, who can help to ensure you consider your plan holistically. This will help you in selecting the right mix of products, risk cover, medical aid and underlying investments for every stage of your life and being well-positioned to cope with the challenges’ longevity can throw at you.