- What will my income be in retirement if nothing changes between now and the day I retire?
- What percentage of my salary should I be saving if I want to retire comfortably?
- Is my investment portfolio right for me?
- What is the waiting period on my income protection benefit?
- What other benefits are available through my group pension fund administrator?
- What choices are available for my retirement portfolio the day I retire?
1. What will my income be in retirement if nothing changes between now and the day I retire?
What usually goes through your mind when you look at your investment report and see a lump sum figure you can expect at retirement? Maybe there are 3 scenarios – good, probable, and bad, with a few million Rand between each. You may think: “————————————————–“, and you would be right! Knowing that you will have R12 million available at retirement if things go well is fairly useless information. A meaningful report would be telling you whatincomethat would translate into after taxand taking into account inflationbetween now and your retirement date. That gives you a realistic picture of what retirement lifestyle you would be living. If FinBofs.comis not your fund administrator and you can’t get this information from your administrator, you are welcome to contact us.
2. What percentage of my salary should I be saving if I want to retire comfortably?
Most funds will have a number of contribution level options. Knowing which one to choose is critical. I love being asked this question, because it is different for everyone and calculating it for a client is always an interesting exercise. Some of the things to consider would be:
- How long you have until you plan to retire
- What other retirement income you would have at that time
- Your tax at that point
- Your family structure and future needs
- What your desired retirement looks like
As you can see each of the above will be different for each person. Working through it is often both scary and exciting. It’s the fear of the unknown, or the fear of knowing it doesn’t look good, that puts most pension/provident fund members off from doing the exercise. Particularly in SA we like to stick our heads in the sand and hope for the best. There is so much flux in the country’s outlook that deep down many aren’t sure if there will be a future here, so why plan for it! The truth is, that may be the case, but not planning is guaranteeing a poor outcome. Rather do the exercise, have a goal, and you may find you have more to look forward to than you expected!
3. Is my investment portfolio right for me?
There are 2 main things to consider when deciding which investment portfolio to choose or create, provided you have the good pleasure of more flexibility in investment choice.
Firstly how much of my portfolio shouldbe invested in growth assets (property and shares) for my given term to retirement? And secondly, how much of my portfolio canbe invested in growth assets for my personal risk profile? These are 2 absolutely vital questions to have the answer to if you are going to successfully reach the end of your working career without being disappointed. Speak to 10 retired individuals and you will probably find 8 are disappointed, simply because they did not themselves know the answer to those 2 questions. And this is why: Most fund members haven’t personally been shown the way growth assets behave and why an investor needsand can affordto take more risk. As a result members often choose a more “stable” option, thinking they don’t want to take risks with retirement money. Sadly that means they have taken a far greater risk – not allowing your investment to grow sufficiently for retirement. Secondly, the greatest destroyer of investment returns is poor investment behaviour. If a member doesn’t understand how he/she will react to market movements, and more importantly if his/her adviser doesn’t understand, its highly likely they will make decisions along the investment path, that are negative.
This is why FinBofs.com offers individualmember planning to cover these vital areas and improve retirement outcomes.
4. What is the waiting period on my income protection benefit?
Income protection benefits offered through pension/provident funds are largely similar across various insurers. The big difference is the waiting period that is required before they start paying out. Why is that? Statistically most people who are booked off work due to an illness or injury are back at work within 3 months. So having a 3 month, or even worse, a 6 month waiting period, means the vast majority of members who need income protection temporarily, will never be able to claim. That means that members who are booked off, use up their paid leave and end up taking unpaid leave to recover. That means that apart from dealing with the trauma of a bad accident or illness, they now also need to deal with bounced debit orders and financial stress. If you have no say in the terms of your fund’s income protection, contact an adviser who can help you cover that gap in your personal capacity.
5. What other benefits are available through my group pension fund administrator?
Having a pool of employees who are in the same industry allows for access to additional benefits that would potentially not be cost effective in a member’s personal capacity. Some administrators and advisers will therefore offer value added services like:
- Home loan sourcing
- Property investment advice and analysis
- Group health checks
- Offshore investment and forex solutions
- Local investments based on personal information already gathered for pension/provident portfolios.
If you would like your fund to be able to offer these and other services you are welcome to contact us.
6. What choices are available for my retirement portfolio the day I retire?
You will have the option to remain invested within the structure of your existing pension/provident fund to be able to benefit from the institutional fees and services available there. These portfolios are however not necessarily structured in the best way for you personally, since they are the “default” option. Having an adviser that has come to know you personally through your fund, will be a great asset in working with you through the years leading up to and entering retirement. If you don’t have that in your existing fund, make sure your personal adviser is independent and able to plan using the retirement funds you are currently saving. If he/she is going to be the one advising you into your retirement, he will also be far more interested in assisting you choose your portfolios leading up to retirement. See our following article on whether life-stage modelling makes sense for you, as a topic to discuss with your adviser.