By Anja van den Berg
Nothing is certain, but death and taxes. And, if those two devils don’t haunt you, old age certainly will. It’s a crude reality to face. Most South Africans are not sufficiently saving for their retirement.
Stephen Katzenellenbogen, a senior executive and private wealth manager at NFB Private Wealth Management, explains why: “The South African Saving Institute (SASI) attributes this to a high level of domestic indebtedness, leaving little disposable income over for the purposes of saving.”
Katzenellenbogen says there are two critical steps to planning a smooth retirement. And it’s not rocket science. Firstly, you need to evaluate how much money you will need to replace your current lifestyle. Secondly, if you find that you have not been saving enough, you cannot bury your head in the sand and hope for the best.
Suppose you have not saved sufficiently, and retirement is imminent. In that case, Katzenellenbogen says that you have two choices: the first is to cut your income needs to a point where your retirement capital can sustain the drawdowns. The second is to extend your career, thus providing time to allow your capital to grow or to supplement your income – while saving as much as you can.
Focus on what you can control and avoid making short-term, knee jerk or emotional decisions. Ideally, you should approach a retirement plan sensibly, realistically and with a long-term approach.
The plan itself needs to include a detailed yet flexible investment strategy. It does not need to be rolled out immediately but can be rolled out over a period. In this regard, Katzenellenbogen gives some solid advice.
Start by mapping out a strategic asset allocation that has exposure to growth assets. This should include your exposure to cash, bonds, property, and equity investments, both local and global. Your asset allocation will play a significant role in your investment and retirement outcome.
You don’t have to have the ultimate equity allocation in your portfolio from the outset. What’s more important is that you have a plan that includes a targeted allocation and that you know how you will ultimately achieve that allocation. This could mean slowly adding cash to your equity assets over a certain period.
You are ultimately aiming for a well-diversified investment portfolio that is tax-efficient and optimises any available tax benefits.
A common mistake that Katzenellenbogen often sees is that retirees withdraw a significant sum of money out of the nest egg to upgrade cars or take an elaborate holiday. For the time being, retirees should instead opt for the conservative side and avoid big-ticket expenses. Taking too much capital out of their savings has a negative long-term impact on the sustainability of capital.