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By Marise Smit*

How certain are you that you can retire comfortably, and maintain a level of comfort throughout your retirement? If your answer is: ‘I don’t really know’, then you are not alone. Too many of us live and (occasionally) save in the hope that our efforts will be enough in our old age.

Marise Smit

Hoping to be OK in the future is a rather desperate situation, but it is not an unsolvable one.

Here are four tips that I share with investors who have taken the active decision to prepare for their future by devising a plan to get there. Even if you have gone most of your career hoping you will have enough, but still unsure, you can still take action today to provide a more secure future for yourself.

Create a retirement plan

No two retirement plans are exactly the same because your dreams, hopes and aspirations are unlikely to be the same as anyone else. Nuances in goals, personality and background ensure that your specific goals will be very specific to you.

And so, your retirement plan should mirror that.

Speaking to an accredited financial advisor can help you craft a plan that will take you on your very own retirement planning path. Factors like personal and financial goals, investment time horizon, and tolerance for risk should all be considered and accommodated in your plan.

With an end goal in mind, it is far easier to see the path ahead and how you are going to get to your goal.

Take this simple equation that illustrates how much you need to save to reach a reasonable level of saving:

– Starting at working age 20, retiring at 60: you need to invest 15% of your pre-tax salary for 40 years

– Starting 10 years later, still retiring at 60: you now need to invest 30% of your pre-tax salary for 30 years (or plan to work until 70)

– Starting 20 years later, still retiring at 60: you now need to invest 60% of your pre-tax salary for 20 years (or work until 80)

Your financial advisor will be able to help you balance your portfolio not only to match your risk, but also your time horizon. If you are early into your career and investment journey it makes sense to have a higher weighting to growth assets, but you should rather lower the risk involved in equities the closer you get to retirement, but growth assets are still required to sustain long term income withdrawals.

Ignore the noise

It is totally understandable if you are nervous when markets or investments get volatile, and the immediate future looks anything but certain. To quote novelist Kurt Vonnegut “History is merely a list of surprises,” he wrote. “It can only prepare us to be surprised again.”

In the context of financial markets, this is true and equity markets will continue to offer surprises. For long term investors, these surprises offer opportunities to buy good quality companies at more reasonable prices.

Volatility is how markets test the price of assets and those that pass the test continue their gradual upward trend. So, the lesson is to ignore short-term movements and stay invested.

One way you can avoid a tendency to panic is to not obsess over how your portfolio is performing. Definitely do not check daily, weekly or monthly, and probably not even quarterly. Short-term moves in markets and valuations are soon forgotten in the context of their long-term performance.

If you do want to take an active interest in your portfolio, then the most sensible move is to meet with your advisor once a year to review what has happened and what might happen – in the markets and in your life – in the coming year.

By all means, review your portfolio but do so with an eye on your long-term goals.

Get the balance right

Constructing a portfolio that helps you reach your retirement goals without making you feel uncomfortable is retirement planning nirvana. And also, difficult to achieve all the time without the help of expert advice to rebalance your portfolio when needed.

For example, you do not want to have extreme exposure to any one asset class or type. Being fully exposed to only local equities or only offshore markets flies in the face of the well-worn principle of diversifying your investment risk.

Also, take the performance of the FTSE/JSE All Share Index (ALSI) versus global equity markets over the past 10 years. The local market delivered a return of 8.2% p.a. compared to 20% p.a. in global markets, but in the decade prior roles were reversed when the ALSI returned 15.7% vs 8.8% in global equities.

Preserve your retirement savings

It is all too tempting if you change jobs to take a nibble at your hard-earned savings.

However, that could be a fatal mistake that makes it all the more difficult to reach your retirement savings goals.

By not touching your savings when you change jobs, you are giving yourself a better chance of reaching your goals. The path is not always easy if you started late or stumbled along the way, but your goal is not unattainable. If you start early and stick to a plan, you have a far smoother path to, and beyond, retirement.

  • Marise Smit, CFP®, is a financial advisor at Brenthurst Wealth Pretoria.