Increasing longevity is one of many positive aspects to recent human development. It brings with it a change in the balance of working years versus years spent in retirement. This in turn implies a need to reconsider traditional calculations, to ensure you accumulate enough to support a prosperous and fulfilling life, from beginning to end. Financial planning is one of the key tools to manage the impact of longevity on finances. Most importantly, a longevity-proof retirement plan does not start at retirement – it begins in the early pre-retirement planning stages.
Addressing the financial implications of longevity
The table below provides an overview of the challenges and possible solutions to the issues associated with longevity.
Selecting the right products via a financial plan
Our current financial toolkit already offers a range of options that meets various needs. The key to planning successfully for longevity is to ensure you use the available tools smartly, and that each tool is matched to its intended purpose. Secondly, understand that your product toolkit is supported by smart investment choices (to ensure you attain growth at the right risk level for your needs). A well-structured and detailed financial plan can help you find the right combination and balance for you. Most importantly, a longevity-proof retirement plan does not start at retirement.
Longevity planning needs to start in the early pre-retirement years
It is important to use the pre-retirement years optimally to accumulate as much as possible. Maximising your retirement savings tax concessions at this stage is very important. Before retirement, the most likely product set includes at least a retirement savings product (e.g. a PSG Wealth Retirement Annuity), supplemented by a tax-free savings plans, discretionary investments and risk cover.
Post-retirement you need to secure a sustainable income
Post-retirement your focus needs to shift to ensuring your investment is as long-lived as you are. Many investors are opting to combine a variety of post-retirement products to ensure they are positioned to meet the challenges of our current environment.
Post-retirement, the appropriate product set will likely include an annuity product (e.g. a PSG Wealth Equity Linked Living Annuity), invested in an appropriate manner (bucketing philosophy), supplemented by longevity guarantees and continued investment in growth assets.
What is the bucket investment philosophy?
PSG Wealth’s bucketing philosophy aims to ensure that capital is allocated to investment ‘buckets’ with appropriate volatility levels that are matched to the client’s income needs. Income is withdrawn from the bucket least impacted by market volatility. This helps to manage ‘sequence of returns’ risk, where longer-term capital is left to grow in assets with higher volatility and a higher expected return, which is then used to ‘top up’ the income bucket when required. By ensuring you withdraw income from less risky investments such as cash (and not high-risk and volatile equities), you can help to ensure that your capital base is more sustainable, while a large portion of your portfolio is still invested in growth assets. We believe this kind of strategy is best implemented with the help of a financial adviser.
Planning for longevity requires a trusted partner
When it comes to investment planning, you need to start planning in the pre-retirement phase to ensure the longevity of your capital. Partner with a trusted financial adviser, who can help to ensure you consider your plan holistically. This will help you in selecting the right mix of products, risk cover, medical aid and underlying investments.