Influence your plan to retire rich

Published May 13, 2000

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Marius Wentzel of Investment Frontiers guided delegates to the Personal

Finance/Investment Frontiers Retire Rich Seminar through ways to set their

own retirement objectives. Esann de Kock reports.

When you start setting out the objectives of your retirement funding,

Marius Wentzel, of Investment Frontiers, points out that you should

consider things such as where you want to retire, when you want to retire

and how you want to retire.

With only six percent of South Africans financially independent when they

retire, he warns that it also is crucial to consider certain key

influencing factors that may impact on your retirement plans.

According to him, these factors are often things which you can do

something about - such as tax efficiency, how to deal with inflation, your

medical expenses and reducing your retirement age.

In contrast, the risk factors you should keep in mind when you plan your

retirement funding are often associated with things beyond your control

such as currency risk, investment risk, retrenchment, the legislative and

the political climate (see separate article).

The key influencing factors

Wentzel says the first one to consider is tax efficiency, as this will have

a major impact on your retirement funding and your goals. The more tax

efficiently you and your adviser manage to structure your affairs, the

better.

Secondly, he says you should keep in mind the effect of inflation on your

retirement funding plans.

Inflation can have a seriously detrimental impact on your finances, he

says. Over 10 years, inflation of about five percent can reduce R100 000 to

R60 000 and at 10 percent it can reduce this amount to R40 000 - which

means you can really only meet a third of the commitments you planned to

meet 10 years ago.

The important thing from an investment perspective, he says, is to look for

investment opportunities that will at least outperform inflation.

The fact that people live longer than ever before is also a key factor you

should keep in mind in your planning, according to Wentzel. There are

important financial implications to living longer lives.

Wentzel warns that medical inflation is also heading for a scenario where

it will soon be 50 to 60 percent higher than the normal inflation rate.

This means that, as you get older, you will find it more expensive to get

the same level of medical benefits as before. This means you will need more

money to cover your medical expenses.

A younger retirement age, he says, can also have a serious impact on your

retirement planning. The younger you want to retire, the shorter the period

you have to build up your retirement funds.

If you are a member of a defined contribution retirement fund with your

money invested in the open market and the outcome dependent on market

conditions, you need to know and understand how and where your money is

invested.

In other words, Wentzel argues, you should take responsibility

for your own retirement money. The days when your employer was solely

responsible for your retirement savings are over, he adds.

Finally, Wentzel says, no one should underestimate the cost of delay when

it comes to starting to save for retirement.

Delay is a key influencing factor. He says the solution to accumulating

vast wealth when you retire is to start early, or as soon as possible, and

to hold on to your savings for as long as possible, because the longer you

have them, the more they will be worth.

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