Retirement Planning 101: Cover the basics now. Reap the benefits later.

Who among us hasn’t been prone to procrastination at one or another stage in our lives? (If you can’t relate… we’d like to do a feature on you.)

For some of us, it even becomes a regular struggle; if you’re nodding your head right now, rest assured that many a head is probably nodding in unison. Point being, though, that often the biggest barriers to retirement planning, besides the inevitable changes in the investment environment, are 1) our tendency to procrastinate, 2) a stubborn belief that we know better and 3) a prevalent culture of immediate gratification

If there’s another thing we do know, it’s that many South Africans simply haven’t saved enough money to maintain their desired standard of living for their retirement years. Considering that the cost of living has become so high, retirement planning isn’t something to put off until later.

We asked Anthony Palmer, Carrick’s Director for Investments and Products, what his take on retirement planning would be if he was allowed only one sentence. His reply summarises it aptly.

“Instead of getting paralysed by trying to cover every possible aspect of retirement planning perfectly, rather break it up into simple, executable basics – then cover the basics excellently”.

Anthony Palmer

Here are our 4 tips for getting back to the basics of your daily finances and long-term financial planning.

1. Save. Yes, your parents were right! Consider the science: Einstein was aptly quoted as saying that compounding is the eighth wonder of the world

• Start saving as early as possible and carefully assess and calculate your retirement needs – not overlooking increased health requirements that come with age.
• Educate yourself on the options available to meet your goals, then commit to following your chosen plan.
• Keep in mind that 100 is the new 90; if you plan to retire at 65 you will need to provide income for another 35 years.
• Make thorough and well-researched provision for your golden years. With ever increasing tax rates, use the tools allowed by the government. For example, in South Africa you can get a tax deduction by contributing into a Retirement Annuity, you can save ZAR33k per annum in a tax-free savings account and you can invest for the medium term through a tax efficient endowment. Internationally, there are several solutions that offer administrative, succession and tax efficiencies.

2. Live within your means. Yes, it’s understandable to want to drive that fancy car or tag yourself on Facebook while eating fancy dinners. Indulgences here and there are good for the soul. However, immediate gratification is short-lived and present pleasures are often not worth long-term suffering.

• Manage your expenses and put money aside for a rainy day. Be especially savvy with costs associated with savings and investment and ensure you are up to date and aware of options available to reduce expenses.

3. Expect the unexpected. Some external factors will always be outside of our control, such as unexpected market changes or tax increases and inflation. More immediately, we experience these changes in our daily living costs, for example the cost of medical aid, insurance, education, cell phones, rental/mortgage payments, petrol price hikes and so forth.

• Once you accept the inevitability of change and work on adopting an attitude of resilience (being able to bounce back from unexpected changes – finding new solutions) you are on the right track.
• A long-term approach and staying the course is key. A good plan is essential in this regard.

4. Protect yourself through diversification. At some point in your life we’re sure you’ve been told “don’t put all your eggs in one basket”, a proverb that will most likely never become old, as it remains to be sound investment advice.

• The principle of diversification is that when one asset in your portfolio drops in value, another one rises, thereby smoothing the peaks and troughs (“volatility”) in your portfolio. Spreading your investment across asset classes, geographies, currencies and industries is one of the few time-tested strategies for investors with long-term financial goals.
• Property is an interesting one. It can be observed that South Africans love owning property, with most of their wealth in South African property – one asset class in one country, that being a relatively high-risk country with a volatile political climate. Exposure to a diversified portfolio of international property via some excellent, and low cost, international Real Estate Investment Trusts (REITs) and REIT exchange-traded funds.

We tell ourselves many things to serve our own needs for immediate gratification

• That eating plan: I can polish this tub of ice cream now, I can get back on track on Monday.
• That assignment or test: I can watch the complete Season 8 of Game of Thrones now – I still have time.
• Going to the gym: I’m too tired now, I’ll go tomorrow.
• Planning for retirement: There’s still time …

No, retirement planning is the one area of your life where justifications just don’t cut it. You can be overweight, unfit and/or underperform on that test, but do you really want to spend your retirement full of worry and struggling to get by?

If you would like a review of your wealth portfolio, or assistance with your retirement planning, one of Carrick’s team members are available to assist you at wealthmanagement@carrick-wealth.com