Financial advice from an accredited financial adviser will improve your chances of retiring as an affluent pensioner, the Sanlam Benchmark Survey of retirement funds suggests.
Sanlam defines an “affluent pensioner” as someone who receives a pension of at least R25 000 a month. To fall into this category you would require retirement capital of at least R7.5 million. The calculation is based on a sustainable drawdown of an annual four percent of capital from an investment-linked living annuity.
On the upside, the 2015 survey has found that 42.5 percent of pensioners believe that they have sufficient money to last them for the rest of their lives. This is up on 31.6 percent last year and 30.3 percent the previous year.
For the 2015 survey, Sanlam created two pensioner groups: a core group representing all pensioners and an affluent group representing those receiving a monthly pension of more than R25 000. The survey excluded pensioners whose sole source of income was the state old age grant.
About 67 percent of the core group received financial advice before retiring. The advice mostly came from employer human resources departments and financial advisers.
Against this, 84 percent of the affluent pensioners received advice from an accredited financial adviser.
About 42 percent of affluent pensioners were aware of the retirement benefits they were likely to receive more than five years before retirement, compared with 25 percent of all pensioners.
The survey also revealed that when pensioners had made questionable choices, such as withdrawing cash from their retirement savings before retirement, 75 percent of the affluent pensioners who had done so were aware of the consequences – but about half of them regretted the decision after they retired.
Of all the pensioners surveyed, 80 percent wanted a pension that provides a secure monthly income, while 20 percent said they were prepared to take the risk of an income that could be up or down by five percent in any one year.
Of all pensioners surveyed, 13.9 percent had opted for a guaranteed level pension. A level pension for life means a diminishing income over time, because inflation will eat into the pension’s buying power.
However, the Sanlam survey shows there has been a shift away from the use of level annuities by retirees, with 20.4 percent having selected this option in last year’s survey.
Only 4.4 percent opted solely for an investment-linked living annuity, where they take the risk that their investments will provide a pension for life.
Of those who chose a living annuity, 23 percent did so because they were able to draw a pension greater than they would have received from a guaranteed annuity, taking the huge risk that the pension would not be sustained over time.
Of the pensioners who chose a living annuity, 54 percent are drawing down a pension of up to five percent of the capital amount each year, with the balance drawing down more.
Repeated research has shown that drawing a pension above four percent of your capital at retirement is likely to be unsustainable and to compromise your ability to draw that level of pension throughout your retirement.