There are a number of things to do, but first is don’t panic. Just a few generations ago pensioners spent on average five years on retirement, and all they needed was the interest on capital to survive those few years.
Today a pensioners’ portfolio needs to contain an element of growth and risk investment to cover not just five years, but the ten to 25 years that comes after that. Warren Ingram, executive director of Galileo Capital, speaking on Summit TV, explains that people should simply view retirement as another milestone rather than ‘the end’.
Allan Heynen, a director of BDO Wealth Advisers, says given the fact that people can look forward to as much as 20 to 30 years in retirement, long before any investment decisions are made, three key questions need to be answered to make available capital stretch further.
“Pensioners are going to have to either: Work after their retirement age; take greater investment risks; or cut back their lifestyle,” he says. He claims many of his clients continue working post-retirement well into their 70s.
Ingram lists a few dos and don’ts: “My suggestion is to keep on working,” a suggestion echoed by Heynen and financial adviser and Entrepreneur columnist Bryan Hirsch.
“People still have value to contribute at age 60 — but they should not look only at the large corporate environment. SMEs need their skills and while they may not be able to pay R30 000 a month, they could afford R5 000 to R10 000 for a half day job.”
A high proportion of retirees continue working and enjoy it — but Ingram advises they use their lifelong skills rather than embark on a new, untried business venture at that age.
All three agree you have to scale back your expenses as far as possible, and also take the existing low interest rate environment to cancel out all debt earlier rather than later.
The worst thing one can do is de-risk. Hirsch says the challenge is that pensioners typically want nothing more complicated than to have their capital placed in the money market.
He says “this won’t cut it,” and he has to continually enlighten clients that with pensioner’s inflation at 8%, their capital will halve in purchasing power every nine years.
Ingram says with 20 years of retirement, if a pensioner’s financial adviser says he should put his capital into cash, he deserves to be shot.
The reality, says Heynen, is that given the lifespan of people, few retire with enough capital even with the right investment products.
Another mistake people make is selling off assets such as their house at the worst possible time. Ingram says: “It may be the right thing to do to later downsize, but do not panic sell.”
Don’t Get Left Behind. Why you should already be saving for retirement.