Investing in your fifties

Many young people neglect to plan for their retirement during their early working lives, arguing that they will take care of it later in life when they are earning a bigger salary. However, on the flip side of the coin, as people get older they assume that they must rebalance their portfolios into more conservative investments.

Luckily, most people are choosing to retire later in life.

If you have left investing in your retirement until later in life, there may be a risk in investing too conservatively (not enough exposure to growth assets like shares and listed property) as your investments need to continue to outperform inflation in retirement. Alternatively, you may be tempted to invest in very risky investment schemes. It is really important to construct portfolios which have clearly set out objectives that will be able to meet the targeted return before and after retirement.

How much income do you need per month? Will you need to buy a new car or fund a holiday? You need to know exactly what your retirement goals and dreams are. This will give you an accurate indication of how your assets have to be invested to cover these expenses. You need to be comfortable and knowledgeable about your retirement. You should know exactly how much money you can safely draw to enjoy your retirement without eroding your capital base.

One of the most important things to try and achieve by the time you retire is to be free of debt. You don’t want to be in the position where you have to settle a mortgage or other debt with retirement capital.

Just because you are retired it doesn’t mean you should stop working. Instead, you should re-focus your sights on a pursuit of happiness. People often still make money during retirement. With a lifetime of experience behind you it wouldn’t make sense to not stay busy. View this as the time you have been waiting for to do something you have always wanted to do, but felt like you never had the time to do. Who know, it may turn out to be a successful business venture.

If you need some help working out a retirement plan or would like to revise your current plan give me a call and we can work something out.

Financial Fortifications for Forty Somethings

It’s often said that the best years are the forties – and for so many reasons! Whilst everyone is different, it’s good to state at the start of this article that this perspective is becoming even more prevalent.

Some forty year-olds are in their first marriage with kids, others are in their second or third… with kids. Some have never been married and have no inclination of doing so. These situations place people in very different landscapes, but they all have one thing in common – over forty years of life behind them.

It poses a unique opportunity to view the ‘hike up the mountain’ from a higher perspective than before, and with the goal of retiring even closer in sight than it was in your twenties and early thirties. It’s healthy to pause and reflect, but it’s crucial to then keep on moving forward!

Forty-year olds need to prioritise staying on top of their finances as this is often a time of higher rising costs – regardless of your life choices.

Here are four quick things to consider!

Managing money and investments in your forties

There are often various significant demands on your time during your forties from building your career and family, which means that many investors in this age demographic don’t set up a proper financial plan or neglect to review the plans they already have in place.

If your employer is not contributing to a pension or provident fund for you, it is critical to save for your own retirement and to utilise the tax deductions allowed by SARS in full to build up tax-efficient, inflation-beating long-term investment savings over your working life.

Risk cover should be a priority

In your forties your biggest risk is that you will lose your ability to continue to generate an income. If you don’t belong to a group life scheme through your employer’s retirement fund, it is really important to ensure that you own a personal risk income protection policy to provide adequate cover for your needs.

If you cannot generate an income it also means that you can’t save and invest. If you are unable to work and earn regular income due to an accident, illness or disability event it could turn out much more expensive than to untimely pass away. It is therefore important to ensure that you have adequate cover, including disability and dread disease cover, and to review it as you earn a bigger salary over time as your lifestyle expenses will also increase.

You should also ensure that appropriate medical (health care) and short-term insurance cover is in place and is sufficient for your specific needs.

Tertiary Education Saving

One of the most popular options for this savings goal is the National Treasury’s “new” tax-free savings account (TFSA). Individuals (including minors) are allowed to invest up to R30 000 a year (up to a lifetime limit of R500 000 per person) in a TFSA that can grow tax-free.

It is also more flexible than approved retirement funds as it is fully accessible before 55 and not limited to the Pension Funds Act’s Regulation 28 asset-allocation rules. However, this TFSA is not a replacement for a good investment-linked retirement fund vehicle.

These TFSAs are excellent long-term savings vehicles and investors have access to the money prior to retirement. The longer the investment time frame, the better. It will take roughly 16 years to reach the lifetime capital contribution limit in these accounts.

Play catch up with your RA

Some forty-year olds may only be beginning to save for their retirement. There are strategies to accelerate your savings plan – but you need to meet with a qualified financial planner.

An appointment with a qualified financial advisor for a wealth planning diagnosis is similar to visiting your medical doctor for a regular health check-up.

If your health state has never been checked to see if you are at risk for cancer or other serious diseases, you would never know if you have a reason to intervene and adapt your behaviour. This is also the case with financial planning. If you haven’t done any retirement planning needs analysis and if you do not have an appropriate strategy in place it is important to see a professional financial advisor to assist you in drafting an integrated lifestage plan and to assist you to implement it according to your priorities and goals.

In performing the financial needs analysis to identify shortfalls concerning specific areas of importance an independent financial advisor worth his/her salt can add considerable value with sound guidance and by offering appropriate alternative solutions.

Are you in your forties? Do you have friends who would benefit from this article? Please feel free to share it with them – or get in touch through my contact page!

Several points for this article were taken from: source

Retirement doesn’t happen at 65…

Retirement planning is only one component of a holistic financial plan and although retirement has a higher probability than all the other risk areas, this is the area we find people being the worst prepared for. Retirement doesn’t happen at 65… it happens when you make it happen!

Planning for retirement is much like planning a flight in a light aircraft. Before you embark on this journey you have to check if your aircraft is in a good enough condition to make the trip, what the weather conditions will be like so that they can be used to your favour and that you have enough fuel in your tank to reach your destination.

This process can be compared to going to see a financial adviser and doing the maths. However, as you fly en route to your destination, things are bound to change. You have to constantly measure your progress and adjust your plan. Setting up a retirement plan is therefore only the first step along a protracted journey.

When formulating a plan you should seek a long-term engagement with a financial adviser that you trust to assist you on your path. Here are a couple of pointers to head you in the right direction:

  • If you plan on retiring at 65, time and errors in assumptions play havoc with the numbers over such long periods. Therefore, err on the side of caution with your assumptions about life expectancy (longer rather than shorter), retirement age (not later than 65 or your company policy), inflation rate (CPI is too low in my view) and expected returns (use very long term historic numbers and adjust downwards).
  • Be specific in your goals. Spend time pondering what you want your life to be like at retirement and plan to reach these goals. Remember though that this plan will need adjusting as you go along.
  • Be sure you match your tolerance for risk with your investment strategy. Bad outcomes are often not the result of bad long-term performance of the investment but because of the investor’s reaction to short term volatility.
  • Be aware of your costs. There are generally three types of fees on an investment (i.e. fund manager fees, platform administration fees and adviser fees). Make sure you are comfortable that each fee taker is worth their fee by looking at the value proposition of each.
  • After five years or so, start using actual money weighted returns instead of projections. There is no sense in projecting at 12% if your actual return over the past five years was 8%. (Some interpretation of the period in question and subsequent returns is obviously required.)
  • Ask the adviser to show you the impact of different average growth rates as well as different retirement dates to understand the profound impact changes like these have on your plan. Extending your retirement age from 60 to 65, for example, can completely wipe out a big shortfall. Remember that there are many different approaches to reaching your goals if you are coming up short. Increased contributions is only one of them.
  • Think holistically about your planning. You can consider direct shares, unit trusts or property as an alternative investment, if it suits your tolerance for risk/volatility. You would do well to take note of the geographical allocation of your investment too. We find many people’s portfolios are very badly diversified from a geographical perspective.

Most importantly, monitor your progress at least once a year. Not checking whether you are on course or not can have a detrimental effect on your projected plan.

Need to formulate a retirement plan? Let’s get in touch!