The two-pot system has made it more tempting than ever for clients to raid their life savings in pursuit of immediate relief. But with correct guidance, clients can make choices that will allow them to live like royalty in retirement.
With the cost-of-living getting ever more expensive, it can be tempting for clients to raid life savings for relief. Indeed, the two-pot retirement system has created a sense of opportunity among some retirement fund members. However, it’s no secret that most South Africans currently don’t have sufficient buffers to see them through post-retirement life.
Liberty research shows that many working South Africans only start to think about saving for retirement once they have passed the age of 40 and are therefore missing out on many years of compound growth and tax benefits that will help them build a safety net for their retirement. Only 31% of people between the ages of 30 and 35 have established a proper retirement savings plan, according to a 2022 Liberty research paper.
By following the right approach, most clients can retire comfortably if they are prepared to make changes to their financial habits. While many understand the importance of saving for retirement, building a portfolio may seem complicated, daunting and expensive. This doesn’t have to be the case with the right advice.
Getting the basics right
Building up for a rewarding retirement starts with saving diligently while a client is still working – the sooner, the better.
Liberty Executive Wealth Adviser Carlo Gil points out that while it may feel challenging for many to save more in the present, helping them sacrifice leads to a smoother and more enjoyable retirement. “Preparing and planning for retirement can significantly ease a client’s later years and prevent loved ones from being financially burdened. By saving more than what might seem necessary now, individuals can create a financial cushion that ensures a retirement with more possibilities,” he says.
Strategic savings
Gil believes that at the saving stage, a person needs to consider different investment strategies for maximum growth. Here are some of his favoured options:
Create a diverse investment portfolio: This involves clients investing their savings in a diversified portfolio with a good split between different asset classes that have the potential for growth over time. This can help their capital grow even after retirement.
Purchasing an annuity: At retirement they should consider purchasing an annuity – a financial product that provides regular payments over a specified period, often for the rest of a person’s life. These can provide a steady income stream in retirement. At Liberty a person can invest in a retirement annuity from R500 per month.
Widen the net: Explore other investment options such as unit trusts, endowments and tax-free savings products. These investments can provide additional income and growth potential.
By thinking strategically and prioritising long-term success over short-term gains, clients can eliminate the worry that so many people feel about their financial future and enjoy a prosperous retirement.
When a client gets there
Nosipho Nhleko, Liberty Lead Specialist for Retail Investment Proposition Management, says that, at retirement the client has the option of purchasing a life annuity, a living annuity or some combination of the two, which is termed a hybrid annuity. All of these come with various conditions, depending on the client’s goals and lifestyle.
“With a living annuity, a client has flexibility in terms of the income they can withdraw, the ability to continue growing their portfolio and the fact that they can leave unused funds as part of an inheritance for their beneficiaries. But this comes with risks and it is possible to run out of funds,” she says. “With a life annuity, clients have a guaranteed income for life, which can help them cover their basic necessities. The trade-off is that this product does not allow a client the opportunity to grow their portfolio or leave any unused funds to their beneficiaries when they pass away.”
Many clients desire some of the benefits that come with both living and life annuities. They may want a guaranteed lifetime income plus an inheritance benefit or the ability to supplement their guaranteed income with a market-related bonus. This is where hybrid products come in, as they blend various products and benefits to get the best of both worlds.
Along with getting the calculations right, it’s worth looking at various products on the market which might help your client maintain their retirement lifestyles in different circumstances.
Making it all happen
Retirement is a very personal matter, and every client’s goals are different, but the important thing is to have the right plan in place to achieve those goals. Here, the adviser’s knowledge of the client’s circumstances is key. Combining this knowledge with the tools and products available will make the difference between a good retirement and a great retirement.
