Guaranteeing your Retirement Income

JeanneArticle by Jeanne Nel

Every person that is due to retire in South Africa is concerned about the amount of regular income they will receive and whether that income is sustainable. At present only 6% of South Africans retiring at age 65 are financially independent. The balance are reliant on family, the state or have to try and find a job or start a business as indicated in this chart.grp

In an article published in August 2014, by Professor of Finance at the MIT School of Management and University Professor Emeritus at Harvard University, Robert C Merton, he states that “our approach to saving is all wrong: we need to think about monthly income and not net worth”.

In preparing financial plans most Financial Advisers do take the income required into account when calculating what the client should save in order to generate the lump sum that will provide the income at retirement, however, the annuity rates that determine guaranteed annuities are unknown for retirement dates at some point in the future. This means that you can only work on assumptions in today’s terms.

The majority of companies in South Africa have also moved away from Defined Benefit Funds to Defined Contribution Funds. What this means is that members are no longer assured of a guaranteed monthly pension at retirement but instead they will have a lump sum accumulated at that date and they will use that to purchase an income of their choice at retirement date.

The other problem is that members withdraw their retirement fund savings on resignation instead of reinvesting it and that means that they create an even bigger gap in their retirement earnings and this is impossible to make up in a shorter time frame.

Merton also says it is only when you are older that you are likely to know how long you will work, what income you will need in retirement and whether or not you will provide for a spouse. If you will have a lower income than desired at retirement you only have a few choices. These are:

  • Save more – if you consume less and contribute more, you are more likely to achieve your goal;
  • Work longer and
  • Determine how much investment risk you are prepared to take within the prudent levels set for retirement funds.

Merton says that if you have a good plan to achieve your income goals, approaching retirement will be much less stressful for you in your later working life.

So why are we telling you all of this?

We at NMG Personal Wealth, focus on retirement planning and assist our clients to achieve their retirement goals. We plan for our retirees to live up to age 90 and have sufficient income to take care of their financial needs.

We constantly evaluate different products in the market to ensure that our clients receive the best advice.

Liberty Life will be launching a new and unique Retirement Annuity in October…. this will allow you to know your future income now, at the planning stage, instead of at retirement.

Imagine being able to determine what your guaranteed monthly income will be at retirement……. 20 years before retirement!

It will remove the worry and uncertainty from retirement planning and instead provide comfort and certainty.

Please feel free to get in Contact with us to find out more.

NMG Personal Wealth
Tel: 0860 664 790