Ensuring a sustainable income that lasts throughout retirement is the main goal when selecting a retirement income solution.
Linda Blom, Business Development Manager at Glacier by Sanlam, unpacks what this means, some of the roadblocks to retiring with confidence, and what you need to do to get on track.
The retirement conundrum
We start saving too late; we save too little; we spend what we can access when leaving employment; we retire with debt; we don’t review our retirement savings periodically and we don’t get advice from a professional financial planner.
Added to this conundrum are the risks at retirement:
- Sequence risk – withdrawing from your retirement account at a time when the markets are not doing well and that could damage your overall return.
- Longevity risk – the risk of living too long (and consequently outliving your retirement capital).
- Investment risk – the risk of negative performance in the markets; and
- Inflation risk – the risk that your income doesn’t keep up with inflation.
Multiple eggs, many baskets
Against this backdrop, there are many important, complex financial decisions to make when you retire. There are many options available to provide for your retirement, and there really is no one-size-fits-all solution. Combining solutions could provide the best answer to ensure sustainable retirement income.
However, choosing solutions and combining them for best effect, is tricky and must take into account many factors that are unique to the person for whom the plan is being designed.
- A living annuity provides flexibility and the potential to leave a capital legacy, but your capital is not guaranteed for life.
- A life annuity will provide a guaranteed income – that is not impacted by market volatility – for the rest of your life, but without the flexibility of the living annuity and there is no capital available to leave as a legacy.
- By combining these two income options, you’ll secure a guaranteed income that will withstand market volatility, via the life annuity. You’ll also gain control over your income (percentage selected) and investments (underlying investment options selected) via the living annuity. Speak to your financial adviser about the best solution for your needs.
Here are some tips for people facing retirement, to help ease some of the anxiety you may be feeling:
- It really isn’t too late to plan. Putting a plan into motion, at any time, can only improve your financial situation down the line.
- Don’t take the journey alone – appoint an appropriately authorised financial adviser if you don’t already have one.
- Don’t put all your eggs in one basket. A combination of retirement solutions gives you the flexibility to benefit from different market circumstances.
- Choose your solutions provider wisely. The brand behind the solution makes a big difference to your financial planning process and their track record cannot be underestimated.
- Drown out the noise. Ignore media hype and leave expert advice to authorised experts. They are trained to take your unique lifestyle and needs into account – and their advice is based on solid research and investment industry insight.
Glacier Financial Solutions (Pty) Ltd and Sanlam Life Insurance Ltd are licensed financial services providers.
By Linda Blom, Business Development Manager at Glacier by Sanlam