Articles about the world of making your retirement work always pop up at this time of the year, possibly because we face the end of the financial and tax year …February. In truth, retirement is all about ultra-long term planning. The earlier one starts, the less painful the journey as you take advantage of the magic of compound interest. One of the ways of showing compound interest at work is to look at ultra-long term money. The first month’s R100 saving you put aside 30 years ago will today buy you ten days’ worth of mini breakfasts at the restaurants around town. The R100 from the beginning of this month will pay for 3 days breakfasts. So 7 more breakfast’s for starting early!
For many readers of Talk of the Town, 30 years ago is a distant memory, “we are already retired”, you will say. The rest of this article is about you.
What is retirement?
Retirement is no longer at 60 or 65, it’s no longer a particular age. It is nowadays better to describe retirement as that point in life where one starts partly or completely to live off the accumulated savings and capital you have built up. The benefit of this approach to retirement planning is that it allows freedom of thought to ‘partially retire’ or, start a second career or, turn a hobby into a money making business. Accessing your accumulated capital is now only part of a much more productive way of planning the rest of your life. It allows for a much more flexible thought process to emerge as one explores all the options including living off one’s capital, or when to sell the mansion and downscale.
What are my choices when I start living off my savings?
In the bad old days when computers were weak and options were few, a retiree would shop around with various insurers and buy a lifetime’s monthly pension. He or she would trade accumulated retirement capital for a guaranteed monthly payment for life. If you died early or late you would receive the same guaranteed amount, with nothing for your beneficiaries but with absolute peace of mind.
But as Nobel prize-winner, Bob Dylan famously sang in the early 60’s “The times they are a-changing”. Today, in addition to the old fixed income or guaranteed pension, there are now literally endless ways to earn your pension.
Together with your adviser you can now plan your phased retirement with matching financial products. Key amongst these is the living annuity. Developed in the early 90’s this flexible solution to providing retirement income allows you to choose a level of taxable cash flow to suit your monthly budget while the remainder of your capital is invested totally free from all taxes. You don’t pay a cent in income tax, capital gains tax, dividends tax or estate duty. What’s more, on your death, you can pass what is left of your capital to your surviving spouse and other beneficiaries with no executor’s fees. Your beneficiaries will also receive the same tax benefits should they wish.
Where to invest?
In addition to their unique structure living annuities also offer endless investment choices to underpin your retirement strategy. These range from personalised share portfolios to cash and bond funds. You could decide in conjunction with your adviser to invest 100% of your funds offshore or hold sufficient in cash to provide say two years income and hold the balance in on and offshore growth assets.
Phased retirement is now the name of the game and there are now infinite flexible financial solutions to help you achieve a seamless and hopefully fun filled transition from working for a living to allowing your capital work for you…and to those of you reading this who are still working start saving now, it’s never too late.
Find a competent financial adviser to help you navigate and dot ‘i’s and cross ’t’s on your route to and through a comfortable worry free retirement.