5 Tips if you’re retiring on a budget

Published on 2nd June, 2020 at 10:16 am

Retirement should be an adventure – but what happens if you end up retiring on a limited budget? Roenica Tyson, Investment Product Manager at Glacier by Sanlam, offers some tips.

Retirement should be a time for new adventures – spending time with loved ones, finding new hobbies and working through your travel bucket list.

As an investor planning to retire in 2020, or being forced into an earlier retirement, the picture may have changed for you, seeing declines in the value of your retirement capital following the recent market correction.

During the first quarter of this year the average balanced fund*, a typical choice for retirement annuity and pension fund allocations, declined by -14%. Investors’ allocation to more conservative** mandates lost -8%.

So, what can you do if you are retired?

1. Don’t lock in the losses

While recent losses and continued volatility and uncertainty may tempt you into abandoning growth assets, cash asset classes may not be king. When transferring your retirement assets into a living annuity, stick with your investment strategy. And when transferring from a retirement annuity or preservation fund, the process is often seamless, which ensures you stay invested and don’t miss the recovery.

Learn more about the pros and cons of living annuities vs life annuities here.

2. Limit the amount of income taken from your living annuity

Large drawdowns (the amount of income taken) early in your retirement can further hurt your already depressed retirement capital. Limiting drawdowns and cutting back on non-essential spending can help to maximise capital to participate in recovering markets. Read this for creative ways to do just that.

Your Sanlam Reality benefits can help you save on travel, entertainment and more when it’s safe to enjoy these pastimes again, like up to 30% off local flights and discounted movie tickets. Reality Club and Reality Access for SGR get exclusive Discount Coupons to lower their monthly grocery bill.

3. Invest your one-third wisely

If you access the one-third of your retirement fund that you may take as a lump sum at retirement, ensure that this is invested prudently. You may need this capital to supplement your retirement income or cover increasing medical expenses later in retirement. Want to know how the experts invest their own money? Read this.

Also keep in mind that any further growth on this capital is taxable, so ensure you optimise tax on this portion of your capital. Speak to your financial planner to ensure this investment amount has been allocated in a tax-efficient way. Book a meeting today.

4. Financial planning continues in retirement

Allocating your retirement capital, or a portion of it, to a living annuity does allow some flexibility into retirement. It is important to engage with your financial planner to design and manage a dynamic retirement plan for you. These experts will know how best to position your portfolio for recovery, or when it may be a good time for you to consider converting to a life annuity, where you secure a guaranteed income for life.

In addition, Glacier by Sanlam offers post-retirement products that may help you navigate retirement even during tough times; speak to your financial planner to discuss these options as you continue to optimise your retirement savings.

5. Stay close to the experts

Conversations with your financial planner are more important now than ever. There are many considerations and decisions to make – not all of them financial. A qualified financial planner can look at your particular situation, taking into account your goals and wishes, and advise you accordingly.

“Retirement is wonderful if you have two essentials – much to live on and much to live for.” – Author unknown

*as measured by ASISA Multi-Asset High equity category and ** ASISA Multi-Asset Low equity category; source Morningstar.

Consult with a qualified financial planner before you take any action when it comes to your savings and investments. Glacier Financial Solutions (Pty) Ltd and Sanlam Life Insurance Ltd are licensed financial services providers.