Werner Vlok, Business Development Manager at Glacier by Sanlam
Investors have more control over their finances than they think. With the right advice and solutions, there is much that they can do to improve their current – as well as future – situation. In this article, we look at the impact of COVID-19 on those saving for a secure retirement, as well as how those who are currently in the process of retiring are affected, and consider some of the ways retirees can improve their current situation.
The lead-up to retirement
While we always advocate not panicking, we acknowledge that those who are on the verge of – or in the process of – retiring, have immediate and valid concerns and not enough time before retiring to make up the losses they’ve suffered.
Our first suggestion would be to delay retirement if you can. If this is not possible, perhaps your skill-set allows you to offer a service that will bring in an income for a while longer – without putting any of your savings at risk to set up a business that may, or may not, succeed. Doing this will not only give your capital time to recover, but will also mean that you’ll be drawing an income from your capital for a shorter period of time. If drawing an income is the only option, try to keep the income for the first couple of years as low as possible to protect capital.
If you have a few years to go until retirement, continuing contributions to a retirement annuity (RA) is a smart move. Markets are showing signs of recovery and investors feel more comfortable investing now than they did a few months ago. By continually contributing through the ups and downs of the market you also get the benefit of rand cost averaging. Not only will you continue building your capital base and reaping the benefits of compound interest on your savings, but you will also continue to enjoy the tax deductions offered by an RA. Remember that your retirement benefit saved in a retirement fund is protected from creditors and estate duty is not payable on the benefit either.
Investments and income after retirement
Retirees with a living annuity currently have the opportunity to take advantage of the relief offered by National Treasury, to end-September. We urge retirees to remember though, that an increase in the income taken will have an effect on the long-term sustainability of the income as you’ll be drawing this higher income from a lower capital amount. The higher income will also potentially attract higher tax. However, if at all possible, reducing the income taken will give your capital time to recover.
Rather than trying to reduce the income taken, a better option may be to combine traditional income solutions to include a guaranteed, as well as a market-linked, portion. We’ve seen interest rates on bonds increase, making the guaranteed portion more attractive.
Advice could make all the difference
When it comes to retirement income solutions, we acknowledge that the number of different solutions, and combinations thereof, as well as rules and legislation pertaining to the investments – can be bewildering to an investor. We therefore urge you to speak to a licensed financial adviser before making any critical financial decisions, especially when it comes to retirement income. Some product selections can be reversed, others not. In some instances, it is possible to generate a higher income for yourself by combining solutions. Your adviser will be able to customise your income stream in retirement to your specific needs.
Add an annual meeting with your adviser to your list of financial non-negotiables.