Retiring successfully

Feel free to reach out to Leon Ferreira PSG Wealth Manager directly.

1) Start saving early.

To achieve financial independence at retirement, the simplest principle is to start saving early. Time is needed to harness the incredible power of compound interest. That’s why it is critical to start saving as early as possible – preferably using an equity-linked investment. The following example illustrates the power of compounding:

Ms X starts saving R1 500 a month at age 26, earning a return of 10% p.a. At age 32 she stops saving but maintains the investment at a growth rate of 10% p.a.

However, Ms Y only starts saving R1 500 a month at age 32, continuing with this monthly investment until age 80.

Who has earned the most money when both reach age 80?

Ms Y will never be able to catch up on Ms X! The compound growth achieved on Ms X’s initial investment is enormous – imagine the amount she would have accumulated had she continued to save until the age of 80.

The greatest gift parents can give their children and grandchildren, is to start investing on their behalf in their early childhood years or assisting them with a savings programme.

2)    Utilise the tax benefits of retirement annuities and tax-free savings schemes.

3)    Stick to your sound investment strategy.

This is where a financial adviser plays a key role, also helping to ease the emotional impact of market fluctuations.

4)    Maintain a healthy lifestyle.

Adopting a healthy lifestyle early on, including a well-balanced diet and regular exercise, is a major contributing factor towards a healthy and happy retirement.

5)    Make an effort to maintain strong relationships with friends, family and colleagues.

6)    Extend your work life where possible and if you enjoy what you are doing, even if downscaled. It brings emotional and financial benefits.

The power of compounding is especially evident when you have already accumulated substantial savings and haven’t made any withdrawals yet.

7)    Steer clear of get-rich-quick schemes

If you have followed the steps outlined above, you won’t be desperate to make money quickly.

8)    Rebalance your portfolio.

Start rebalancing your portfolio about three years prior to retirement, ensuring that apart from exposure to equities – which are subject to market volatility – you have enough liquidity to cover your income for at least the next three years.

Although equity-linked investments offer the best returns in the long term, maintaining a 100% equity exposure is not advisable.

To provide peace of mind, we use the three-basket principle, namely (1) enough cash available for the short term, (2) a balanced portfolio for the medium term, and (3) equity-linked investments for the long term.

Remember to make provision for major capital expenses such as property and cars, or that 4x4 with the roof top tent and all the accessories you can think of.

9) Maintain a wide range of interests.

A wide range of interests, sports, hobbies, community services or activities involved in from a young age can pave the way for an active and a fulfilling retirement.

Having followed the above steps and achieving financial independence will enable you to fill your life with joyful activities.