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The three phases of saving for retirement



About PPS Investments:

PPS Investments, South Africa’s largest multidisciplinary society of graduate professionals and 2018 FIA partner, offers a comprehensive range of competitive investment solutions designed to empower investors. In the press release below, Executive of Business Development at PPS Investments, Shaun Ruiters discusses stages of saving for retirement.

Life expectancy within the global context has been increasing rapidly, which enhances the growing risk of outliving your retirement savings. According to the World Economic Forum, individuals born in 2017 are expected to live to the year 2117. The obvious consequence of this is that it would be necessary to have enough savings to last more than 30 years after retirement.

This is echoed by research from the United Kingdom’s (UK) Department for Work and Pensions, which revealed that the number of individuals working past the age of 65 years, has more than doubled since 1995 – and this trend is expected to continue.

A common misperception is that reaching one’s retirement date is the end of one’s retirement savings journey, when it is in fact only the beginning of the next phase.

Planning for a comfortable retirement is split into three key phases: the accumulation phase; pre-retirement stage; and managing your post-retirement finances. While each phase is unique, these phases are inter-linked and, if managed carefully, they should collectively result in a positive outcome at retirement.

Here is a more in-depth explanation of the phases:

  1.     The accumulation phase

The individual’s main focus during this phase should be on building adequate savings. Closely aligned to this would be choosing appropriate investment options for your investment horizon. It is advisable to choose growth assets, such as equities, during this phase particularly if you have more than 10 years to retirement. Taking a conservative approach in your investment strategy during this phase poses the risk of not allowing your savings the opportunity to grow as much as they could.

  1.     The pre-retirement phase

As you get closer to retirement (say 10 years away), you should start restructuring your investment portfolio with a view to de-risk. This means shifting your investment strategy to a less aggressive and a more diversified or multi-asset approach.

In preparation, start researching and carefully considering the most suitable annuity option for your next phase. For example, the PPS Living Annuity is a post-retirement solution that invests your accumulated retirement capital while providing you with a regular income. A key advantage of this solution is that you retain full flexibility to change your level of income annually, with the ability switch underlying investment options as your circumstances change without incurring any transaction charges.

  1.     The post-retirement phase

At this point in your retirement journey, you will reap the rewards of your savings, but be warned, this phase is not without risks.

For many, longevity risk is a major factor to consider and simply means that you face a number of risks associated with living longer. One such risk is outliving your retirement savings. On a real basis, the odds of outliving your savings are quite high and retirees will need to factor this into their post-retirement planning.

After reaching the average retirement age of 65, you may realise that you have not saved enough and may therefore either need to delay your retirement to work for a few more years, or find other ways to supplement your retirement income.

Throughout your retirement journey, it is important to consult with your financial adviser to ensure that you are still progressing towards securing retirement savings to help meet your future needs.