By James Fraser, Chief Operating Officer

After a rewarding career, the ideal scenario would be to maintain a comfortable lifestyle for you and your family. The reality faced by many is that they would not have achieved this goal. Research shows that only 6% of South Africans will have made adequate retirement provision while 49% do not have a retirement plan. Other than continuing to work into retirement years due to financial obligations, we look at some ways to bolster retirement provision.  

Risk of outliving retirement savings 

A major factor to consider is longevity risk, which is the risk of a person outliving their retirement savings. Consider that people are living longer, which requires a bigger pot of retirement savings than previous generations. The longevity risk faced by the graduate professional market is even more pronounced.  

Life expectancy of PPS members versus the average South African

Research by PPS, based on over 80 years of experience in serving this market, shows that the average PPS member will live about 10 – 15 years longer than the average South African. There are some retirement vehicles, such as the PPS Living Annuity with Lifetime Income, that offer a component of monthly lifetime income over minimum payment periods, for main member and spouse, that can be accessed for this purpose. 

Combatting inflation 

Inflation globally remains at elevated levels. Conventional wisdom teaches us that we should seek out certain asset classes during periods of high inflation. Certain asset classes, like inflation-linked bonds, which have an inflation hedge serving as a buffer against inflation as the coupon and principal adjusts as inflation changes; and cash, which tends to benefit from increasing short-term rates, as monetary policy acts to control the inflation level.  

However, another way to look at this scenario is to seek investment options offering layers of diversity, such as a multi-managed fund, which is aligned to the investment objective, for example CPI+3% and time horizon (short-, medium- or long-term). A multi-managed fund combines various asset classes, managers, and funds, which are blended to create an optimally diversified portfolio well-poised to achieve the set objective over time. With sensible diversification, market forces like inflation shouldn’t matter because different components of the fund will perform well during various phases in the market cycle. 

Invest beyond retirement 

When reaching retirement, there’s no need to stop investing towards retirement savings. There are retirement vehicles, such as living annuities, that offer a component of continued growth alongside a regular retirement income stream. It’s important to be comfortable with market fluctuations, as the risk associated with investing is carried by the annuitant.  

Take a consolidated view of retirement savings 

Some people may have retirement savings spread across various retirement fund providers, or have savings earmarked in product wrappers not specifically designed for retirement savings. Aim to take a consolidated view of all retirement savings across providers to get a better reflection of what could be available when retiring. There are tools and calculators available to show illustrative future values and give an indication of how much additional savings is required monthly to achieve the goal within the time that’s left before retirement. Consolidating investments with one provider could also afford access to reduced ongoing administration fees. For example, PPS Investments offers access to a sliding fee scale on a combined market value of R1.5million and above. The same access can be extended to families who invest at PPS Investments through the Family Network.  

Determine how much is enough 

This can be tricky to determine but having a sense of how much money will be needed to cover expenses helps to establish if the retirement plan is on track. Consider what monthly spending requirements will realistically cost in retirement, such as medical aid, short-term premiums, etc. About 33% of retirees underbudget funds to cover medical expenses, which is the second largest expense in retirement. Keep in mind ad hoc expenses (such as holidays) and a reasonable amount to set aside as an emergency fund. PPS offers a unique benefit to its qualifying members which enables them to fund PPS Insurance, PPS Short-term Insurance and Profmed premiums directly from their Vested PPS Profit-Share Account, where available. This benefit allows members to extend their retirement savings. 

Profit-Share can be used as a retirement asset 

Operating under the ethos of mutuality, PPS pays 100% of operating profits to its qualifying members. Once a member retires from their PPS Provider™ Policy products, the profits accumulated over the course of their PPS membership become accessible via the Vested PPS Profit-Share Account. Members are then able to utilise their accumulated profits in the Vested PPS Profit-Share Account as part of their retirement plan, by keeping it invested to enjoy continued growth and supplement their retirement savings. 

Partner with a professional on your retirement journey 

Any financial planning exercise should be done in close consultation with a qualified financial adviser, who is best placed to provide guidance on retirement investments, and suitable retirement vehicles to save towards retirement and when reaching retirement age. There are several phases to building retirement provision and then securing a post-retirement income, so it would make sense to speak to a professional throughout the retirement journey. 

Disclaimer:

The information, opinions and any communication from PPS Investments Group, whether written, oral or implied are expressed in good faith and not intended as investment advice, neither does it constitute an offer or solicitation in any manner.

Furthermore, all information provided is of a general nature with no regard to the specific investment objectives, financial situation or particular needs of any person.

The PPS Profit-Share Account and PPS Profit-Share Cross-Holdings Booster are benefits available to PPS members only and are

not financial services regulated by the FAIS Act, but are Insurance obligations in terms of the Insurance Act 18 of 2017.

PPS Investments Group is a subsidiary of Professional Provident Society Insurance Company Limited, a Licensed Insurer and Financial Services Provider. PPS Investments Group consists of the following authorised Financial Services Providers: PPS Investments (Pty) Ltd (“PPSI”), PPS Multi-Managers (Pty) Ltd (“PPSMM”) and PPS Investment Administrators (Pty) Ltd (“PPSIA”); and includes the following approved Management Company under the Collective Investment Schemes Control Act: PPS Management Company (RF) (Pty) Ltd (“PPS Manco”). Financial services may be provided by representative(s) rendering financial services under supervision. www.pps.co.za/invest