By Nirdev Desai
Jack Welch famously said, “Take control of your own destiny, or someone else will.” In so many ways, this applies to retirement planning as well.
The number of South Africans who are able to retire comfortably has stubbornly stayed around 6% for a few decades now, one of the traits these individuals share is that they are taking control of their destiny. This includes saving for retirement, having a holistic financial plan to support effective saving for retirement, and having the stamina and commitment to execute on this plan. This is easier said than done, so this article provides a checklist to help you start, and stay committed to a plan to be part of the group of South Africans that will be able to retire comfortably.
Develop new and healthy habits
Investing in your retirement plan implies making a long-term commitment. In our world of instant gratification and cheap credit, this means sticking to your long-term retirement plan and not letting it become derailed – for example by a desire for the latest fashion trend, car or cell phone.
The key is to ensure that your plan is practical and to stick it. You also need to understand factors that might lead you to stray from your plan and have the tools in place to address those temptations if they arise. The hardest part (as with anything worth doing) is to start committing to a retirement plan. The second hardest is staying committed. Building healthy habits takes time, and just like committing to a new diet or exercise regime, understand that it will take willpower to see your plan through to completion.
Understand your investment journey
Establish where you are now compared to where you need to be. Have true introspection into what your retirement will look like with the various scenarios you may be faced with. Next, visualise these scenarios, and choose the one that matches your desired outcomes. A comfortable retirement will certainly mean a tighter budget today. Also keep in mind and understand the alternatives or support from family, your community and the state should your retirement capital run out.
Speak to an adviser
A financial adviser will guide you in identifying your investment gaps and formulate plans on how to meet them. A retirement plan needs to be robust, yet flexible enough to meet your retirement objectives practically and realistically. Part of this will be understanding the gap between your current plan (if you have one), and the one that will deliver the desired retirement outcomes. This may include understanding investment shortfalls ranging from capital saved up so far, to ensuring the appropriate allocation to growth assets, including appropriate diversification over asset classes, sectors and geographies, and currency risks, to name a few.
Revisit your retirement plan as your needs and goals change
It is important to ensure you embark on this journey with a financial planner. Having an objective viewpoint will ensure you don’t fool yourself on whether your plan will be sufficient for your needs. As you go on the journey of saving for retirement, your needs and goals may (and most likely will) change. Your financial planner will be able to adjust your plan to realistically fit your circumstances as they change.
Don’t look at your portfolio too often
You will likely have a substantial allocation to growth assets – such as equities – in your portfolio. While these deliver handsome returns in excess of inflation, they are more volatile than more conservative asset classes like cash. It is crucial to understand their role in your plan to deliver those inflation-beating returns, and to afford them sufficient time to deliver those returns and be rewarded with full benefit of the effect of compound growth.
The best time to start was yesterday, but the next best time is today – carpe diem! Understand your reality and plan your place as part of the 6%.
Nirdev Desai is head of sales at PSG Wealth
BUSINESS REPORT