The destination

In order to set a course for your retirement savings journey, you need to know where you want to go. To assist you with this, your financial adviser can help you to unpack important factors like:

• when would you like to retire,
• how much will you need for daily essentials in retirement (life expenses), and
• what kind of lifestyle are you aiming for (living expenses).

These and other similar questions help you to sketch your destination. The next step is to understand how much you need to save and what type of investment strategy you need to follow to get there. Factors like inflation and time in the market will all influence this, and investment growth and tax efficiency can potentially help your savings grow faster and increase your income in retirement.

We often think of retirement savings as a lump sum and forget that it is actually an income, or a salary that we need to receive after we retired.

The more you save and invest for retirement and the longer you save and stay invested, the more you will be able to ‘receive’ during your retirement.

Knowing what future income level you will need and what income level your current savings can potentially give you, will help you make better decisions about your retirement savings.

The temptations

On your journey, there will be temptations to direct your money elsewhere. Thoughts about what you can buy for consumption now instead of later will intrude. You may even convince yourself that there is enough time to save for retirement. These are all distractions from staying the course and reaching your destination. Once the opportunity to invest is lost, it doesn’t come back.

The bonus you invest today, rather than spend on something you don’t actually need, could be worth so many more years from now when you really need it. So, avoid these temptations and try your best to contribute the maximum amount to your retirement consistently and for as long as possible.

But life does happen, so if you need to take a contribution holiday, make it as short as possible and re-start your contributions as soon as possible thereafter. And most importantly, if you change jobs, preserve, preserve, preserve. Keep your money in your retirement fund, or transfer it to another fund. You should only access your retirement savings as a last resort.

The fears

Many members who had put savings into a retirement annuity fund panicked when COVID-19 hit and the markets fell. But this type of panic often causes poor decisions because they are usually based on emotions, like fear.

When markets fall, or you hear about the ‘next best sure thing’ in investments, the urgency will be there to change your investment strategy. But just because a particular investment provided good returns last year doesn’t mean that it will do so again. Equally, selling an investment whose value fell recently only means that you make your ‘paper’ loss a reality and you do not have the chance to recover it.

Our research on investor behaviour preceding and during the Covid-19 pandemic of 2020 show that as market crashes go, the investor response was all too familiar and a tremendous amount of investment value was destroyed once again. As panic set in, the number of investment switches in March 2020, at the time of the crash, spiked and investors switched to what they thought would be “safer” investments, like a money market portfolio.

In reality, members lost nearly R100 000 000 between March 2020 and December 2020 because they remained in these “safe” asset classes for most of the inevitable market recovery. The markets eventually did recover, but investors who switched out were in the wrong place at the right time.

Stick to your long-term strategy

When you choose an investment strategy with your financial adviser, recognise that it is a strategy for a certain number of years and is designed to get you to a successful retirement. Your goal doesn’t change with the markets and neither should your retirement strategy.

Retirement planning is not a once-off exercise, and you need to keep the end goal in mind. The underlying investment determines the growth potential and has a significant effect on how much you can eventually earn during retirement. Understanding the different income options available at retirement will help you to plan better. The journey to a successful retirement is unlikely to be straightforward and predictable. Every positive action can increase the income that you will be able to pay yourself when you need it later in life.

Staying the course means that you make decisions now that will benefit your future self.
With the right planning and the right advice from a financial planner, success in retirement can be a reality.