Even as some retirees complain that they feel less useful or relevant than they did when they were working – be that teaching children, running business empires or healing the sick – one very important matter that often remains under their own control is making their savings last.
As Andre Tuck, Senior Investment Consultant at 10X Investments explains, this is not always just a matter of living frugally and spending carefully.
With so many unknowns, such as how long we will live, what the price of necessities will be in the future, and how the markets will perform, it is crucial to exercise care when it comes to those things we can control, such as where and how our savings are invested and what that costs us.
It may come as a surprise to hear that even after you have retired and selected your annuity or pension product, you are not necessarily stuck with that service provider. One of the flexibilities you have with a living annuity is that you are not tied to a provider. If, for example, your provider underperforms, or charges too much, you can take your money somewhere else.
Remember that your retirement savings pot will probably have to last for a long time. There are a few key ways to improve the likelihood of your savings lasting, and switching service providers can be a game-changer in this regard. Reasons retirees give for switching include under-performance, over-charging, a less than optimal investment philosophy, or lack of transparency regarding any of the above.
While there is little you can do to increase your retirement pot once you have stopped working, there’s much you can do to make your savings last. A low-cost high equity portfolio can add many years of sustainable income, provided you draw down prudently.
Essentially, you need to give your money the chance of earning returns that outpace inflation over time, which means putting some money into the share market. Historically, this has been the most reliable way to build wealth.
There are generally two choices over investment style, either active, where managers attempt to beat the market, or rules-based investing, where managers leverage the power of the market. Actively managed funds choose specific stocks or bonds based on what they think will perform better in future; rules-based funds track the performance of the market.
There is, of course, a chance that an active manager will outperform the market in a given year, but that chance is quite slim. The chance of a manager beating the market consistently over a number of years is very slim indeed. In replicating an index, or tracking the market more broadly, rules-based investors are leveraging the power of the market. In addition to significantly improving their chances of success, rules-based funds generally cost the investor less.
Fees are a very important consideration. Retirees sometimes forget that their savings are depleted by fees as well as by draw-downs. If you are drawing down on your Living Annuity prudently, at, say, 4% or 5% pa, an additional 2,5% in fees equals half your retirement income and will take years off your savings.
The 10X Living Annuity does not charge for advice or administration, and investors pay a maximum fee of 0.87% (including VAT), which reduces for amounts above R5m.
One of the flexibilities you have with a living annuity is that you are not tied to a provider, so if your fees are too high you should look into switching. If you are in any doubt ask 10X to do a free cost comparison, no-obligation today.
Download the free e-book The South African guide to making your savings last in retirement.
Join 10X Investments for a panel discussion hosted by Michael Avery about taking control and making your money last in retirement. Find out more about the webinar, which is scheduled to take place on 25 January at 13h00, and book your spot here.
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The content herein is provided as general information. It is not intended as nor does it constitute financial, tax, legal, investment, or other advice. 10X Investments is an authorised FSP (number 28250). 10X Index Fund Managers (RF) (Pty) Ltd is a Manager registered under the Collective Investment Schemes Control Act, 2002. The 10X Living Annuity is underwritten by Guardrisk Life