How can I potentially grow my assets during retirement?
Retirees must continue to view themselves as long term investors. Retirement now is likely to last far longer than pre-ceding generations. This means that a significant portion of a retirement portfolio must be exposed to growth assets like equities. Resist the traditional advice of reducing all or most of your investments to cash as you approach retirement.
The exact amount of equity exposure will depend on a number of factors and there is no simple solution. Every retiree should examine their cash flow modelling to understand what asset allocation is best suited to their scenario. Retirees must understand that it may be more risky not to expose a portion of the portfolio to growth assets and rely only on cash and cash like asset classes.
What about inflation?
Inflation is the stealth stalker of many a retirement portfolio. In simplistic terms inflation negatively effects the buying power of money over a period of time. What R1,000 can buy you today is a lot less than what it could buy you five years ago. One only has to price a normal weekend shopping basket at your local supermarket to realise that we live in an inflationary environment.
Inflation needs to be factored into a retirement planning cash flow model. The official rate of inflation is +/-6% per annum. However, for a professional person or graduate this is far higher. One only has to consider what the annual increases in the price of medical aid and electricity to get a better idea of one’s actual inflation rate.
What about health care and longevity?
The average life span of individuals across the Western world is on the increase. However, it does come at a cost! Medical science has made incredible strides over the last few decades and cures abound for all manner of illnesses and replacement body parts are widely available.
Retirement cash flow plans and strategies need to take these factors into account with a suitable cushion for health care costs built into each and every plan.
Should I invest offshore?
Living and retiring on the Southern tip of Africa is not for the faint hearted. South Africa comprises less than 1% of world GDP, so putting all your eggs in this small investment basket is taking a risk. However, balanced with this fact is the view that it is not wise to take exchange rate risk with capital that is designated to fund retirement cash flows.
Many South African retirees have children and heirs that are living in all corners of the world. Any potential heir living abroad would be extremely grateful to their parents for the foresight to rand hedge a forthcoming inheritance.
Any successful retirement planning strategy must take these factors into account when determining what amount of a portfolio should be offshore and precisely how this offshore exposure should be obtained.
Do I need to adjust my strategy?
We are living in a global economy with information freely available and financial markets open 24 hours a day across many times zones. Any investment strategy is only really 100% relevant at the time that it is drawn up, and a retirement planning strategy is no different.
One does not want to keep chopping and changing strategy in terms of knee jerk reactions that is akin to closing the stable door after the horse has bolted. However, just as serious is setting up a plan and strategy and then doing nothing in terms of ongoing monitoring and tactical adjustments.
The best retirement planning strategies stick to the underlying fundamental principles of the plan, but do make regular tactical adjustments. They factor in changing economic circumstances and take advantage of new opportunities that present themselves. A quality experienced advisor will be well versed in walking the tightrope that gives the portfolio optimum performance.
Retirees who have found trusted advisors who combine all of this attributes when advising on a retirement planning strategy are able to enjoy many fulfilled happy years of retirement and well advised to retain the services of such advisor.