Getting ready to retire during these troubling times? Here’s what you need to know

Getting ready to retire during these troubling times? Here’s what you need to know

Published on 21st May, 2020 at 01:56 pm

Times like these are tough for everyone – but even more so if you’re getting ready to retire. Francis Marais, head of research at Glacier by Sanlam, is here to help.

Times like these are tough for everyone. Uncertainty abounds and markets show very high levels of volatility. On top of this, South African investors have had a tough period these last couple of years with risky assets not outperforming cash. Those who have managed to stay invested have been rewarded now with sharply negative returns and extreme levels of volatility.

Getting ready to retire?

There are, however, investors facing an even more difficult period – those who currently are retiring or getting ready to retire. So, what to do? Some investors seem to want to abandon growth assets completely – and who can blame them? But is that the right thing to do? A quote often attributed to Mark Twain says that history never repeats, but it often rhymes.

Looking back in order to look forwards

So, let’s look at previous periods where we had significant negative monthly returns. Since 2002, there were three months with significant negative monthly returns on the JSE: July 2002, September 2008 and October 2008, with returns of -13.44%, -13.24% and -11.65% respectively. What would have happened if an investor retired during each of those periods and disinvested from a medium equity fund, into a money market fund and stayed there, comforted by the fact that they no longer face any risk? In addition to that, let’s assume they retire with a R5 000 000 lump sum and withdraw at a sustainable rate of 4% per annum.

The table below summarises the different outcomes as at 29 February 2020.

Source: Glacier Research & Morningstar

In each one of these periods, if you had realised your losses and moved into a living annuity consisting of 100% cash, you would have been worse off. You would also have had lower monthly incomes as at today.

Source: Glacier Research & Morningstar

That brings us to the next point regarding income growth – where staying invested significantly outperformed the cash strategy in terms of protecting your purchasing power.

Source: Glacier Research & Morningstar

Cash is not king

So, what are we saying? If you’re getting ready to retire, we acknowledge that it’s extremely tough – but disinvesting from your current strategy into cash is not necessarily the best option. If you have taken a bit of a knock in your portfolio and you are  getting ready to retire, try and see through the retirement event and continue with the same type of strategy you had pre-retirement. Naturally, it’s best to work with a financial planner to partner with you on this sometimes daunting journey.

Should you be more aggressive?

There is one column (the last one in grey) in all these graphs, which we have not yet addressed; that is moving into a very aggressive portfolio once in retirement, consisting of 100% equities. While this is purely a thought experiment, it does show the advantages of having growth assets in one’s portfolio and if anything else, warns against the danger of excluding growth assets in one’s portfolio.

Remember to work with your financial planner to utilise a broad range of product and investment solutions suited to your personal needs.

Worried about your investments? Speak to an expert financial planner who is best placed to advise you based on your personal portfolio, needs and risk. Click here to set up a meeting, which can be via phone call. Glacier Financial Solutions (Pty) Ltd and Sanlam Life Insurance Ltd are licensed financial services providers.

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