Retirement planning must take into account that savings will likely have to last longer due to people living increasingly longer because of improved medical advances and facilities, says Coreen van der Merwe, managing director of Sovereign Trust.
“Increased longevity means a lot of people have to downscale when they retire. Many people think they will travel once they retire, but the harsh reality is that especially international travel becomes more difficult then,” she told Fin24.
“At the end of the day any financial planning needs the right planner. You cannot take it lightly. You need people with sufficient experience in retirement planning.”
One of the trends noted by Sovereign in SA is an increase in retirement estates.
“It used to be that people retired close to the coast in Cape Town, Knysna and Durban, but we now see these retirement villages also being developed in Gauteng. People probably want to be close to their families and on top of that, it is more expensive closer to coastal areas,” explained Van der Merwe.
“These developments usually have long waiting lists and can be expensive. Although this might not be an issue for upper income earners, it might be a problem for average income earners.”
That is why, in her view, it is important for families to face reality and start thinking about where their parents will go when they retire.
“We all want our parents to live long, but the reality is that illnesses might require them to have access to high care facilities. So make a point of discussing early on where your parents are going to go to. Don’t wait till they are 60 or 65,” suggested Van der Merwe.
Another trend noticed by Sovereign is that people are diversifying. They are not only considering South African options.
“We only do offshore pensions and it is amazing to see younger people are already starting to diversify. We used to see people from 50 and older, but over the past three years we have seen people as young as 35 starting to consider investing in an offshore pension. They seem in a bit of panic and want a nest egg in a stable jurisdiction in a strong currency like the dollar, for example,” said Van der Merwe.
In her view there are great products available in Guernsey for instance, where the financial sector also has a good relationship with the government. Hong Kong is another interesting option from an occupational pension scheme perspective – in other words where an employer makes contributions on behalf of an employee.
Hong Kong has a double taxation agreement with South Africa in place that provides certain tax benefits when distributions are paid from a Hong Kong pension. The other benefit is that usually any employer contributions to a pension are excluded from a person’s South African estate in the event of death.
“You need to consider things like where you are in your financial planning – for instance in your mid-30s, mid-40s or mid-50s; how long you can still contribute to a retirement plan; and if there are any other international assets, for instance property with a rental income.
“When the rand weakens, it might not be a bad idea to bring in other savings from overseas. Also see if you have debt to pay off. You need to monitor the value of the rand so you bring the money in at the right time,” said Van der Merwe.
“A lot of our clients say they know their children will study and work overseas and they want to make sure they can travel to see them. That is why they want a nest egg in pounds, dollars or euros.”
She emphasised that it is very important to start saving for retirement as early as possible – from your first salary cheque. Have the discipline to – routinely – put away money towards a retirement plan.
“Make sure the investment in the retirement plan grows properly. It is no use investing in pounds or dollars if the investment shows poor growth. Also look at the fees each year. Make sure whatever management fee you pay is competitive,” she added.
“Make time to sort out your own affairs. Many people are so busy with other things during the year that they do not make time to think of their own retirement planning properly.
It is estimated that only 29% of people who can afford to retire, can maintain the same standard of living afterwards. At the same time, many people actually cannot afford to retire at all.