Now is the time to reap the fruits of years of hard work.
The focus is shifting from the accumulation of wealth to the generation of income, as your needs will fundamentally change after retirement.
One of the major risks that need to be addressed in any retirement plan, concerns the reality of ever increasing life expectancies of our clients (longevity risk). Longevity risk or the risk of outliving one’s financial provision (savings) is from many perspectives not a simple matter to address. There are a wide range of factors which must be considered, for example:
Overall levels of wealth, whether you have reasonably accumulated enough to last for an extended lifetime.
Changes to spending patterns throughout the phases of retirement (active, passive, frail),
The cost associated with private sector medical products and services.
Behavioural biases for example the inability to make long term decisions.
Consider the following table on the income (p.a.) you may draw from your accumulated wealth:
Age | 55 | 60 | 65 | 70 | 75 | 80 | 85 & older |
Male | 5.50% | 6.20% | 7.30% | 8.70% | 10.70% | 13.50% | 17.50% |
Female | 4.80% | 5.40% | 6.20% | 7.30% | 8.90% | 11.20% | 14.60% |
Statistics show that more than 75% of clients in South Africa realise at some stage that the amount of savings accumulated will not be enough to address their income needs. But even more important is the fact that many clients forget to consider the tax implications of their investment decisions. Tax can potentially erode your wealth and it is evident that tax concessions in South Africa will continue to favour the poor that are not investors.
Pentagon Financial Solutions PTA (Pty) Ltd can provide a client with advice and the appropriate product solutions. This may inter alia include the structuring of more than one investment vehicle to provide tax efficient income after retirement. Savings can be invested within a diversified portfolio, structured according to a client’s individual risk profile, to assure that sufficient income is generated to provide an adequate standard of living after retirement.
It is important to note that you are only allowed one withdrawal from your retirement funds before the age of 55.
One of the biggest consequences of making a once-off withdrawal is rarely considered by clients: the lost opportunity of compounding interest earned over time. If the time value of money (the idea that a Rand today is worth more than a Rand in the future because of its potential earning power) is not applied, you could be missing out on thousands of Rand at retirement.
The financial consequences for taking a withdrawal from your retirement savings greatly affect your ability to meet retirement saving goals. The alarming fact is that many clients make once-off withdrawals every time they change employers. When multiple withdrawals are taken, the negative effects compound, creating bigger obstacles for you to overcome before you reach retirement.
Pentagon Financial Solutions PTA (Pty) Ltd can provide a client with advice and the appropriate product solutions, inclusive of a preservation fund to protect your accumulated wealth, and assisting in investing in a savings plan within a diversified portfolio, to provide for your maturing family.