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.