Retirement planning does not end when saving stops

For many South Africans, retirement planning is still understood as an accumulation exercise: save what you can, contribute to a retirement fund, preserve when possible and hope the numbers work by the time you stop earning a salary. But the real test of retirement planning begins when the pay cheque ends.

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As longer lifespans, shorter working careers and volatile markets reshape the retirement landscape, investors need to think more carefully about the transition from building retirement capital to drawing a sustainable income from it.

This is where asset managers and financial advisors have a critical role to play: helping investors understand the trade-offs between growth, risk, income and longevity.

“The goal of investing during retirement is simple: to maintain a real income for the rest of your life,” says Pieter Hugo, Chief Commercial Officer at STANLIB Asset Management. “By excluding growth assets from your portfolio, and drawing down too much income, you are setting yourself up for failure.”

This is a sobering message in a country where many people are not saving enough, cashing out retirement savings when changing jobs, or starting the process too late. Yet retirement risk is also about how money is invested, how quickly it is drawn down, how long it must last over what may be many decades, and how investors behave when markets become uncomfortable.

The rules have changed

Over the past several decades, the structure of retirement provision has shifted significantly. Under defined-benefit arrangements, employers carried much of the responsibility for providing a promised retirement benefit. With defined contribution arrangements, the responsibility has moved increasingly to individuals. That gives investors more control, but it also means they carry all of the investment risk and longevity risk themselves.

Longevity is one of the most underestimated risks in retirement planning. People are living longer, and for couples, retirement capital often needs to last until the death of the last surviving spouse. The implication is clear: retirement is a long-term financial phase that requires an investment strategy, an income strategy and regular reassessment.

Growth still matters in retirement