In October, the focus was firmly on retirement and, as a theme, it draws our attention to the need to plan and save for the day your clients retire. I think people have heard enough preaching about the fact that they are not saving enough.
For me, it is more about empowering people to make conscious and positive decisions about their future. It is about maintaining independence as a retiree and having the money and accumulating the resources to pursue goals and aspirations in their later years.
In fact, clients’ perceptions of retirement have changed significantly in the last decade or so. As a life stage, retirement doesn’t have to be a full-stop but rather the start of another exciting chapter. Many South Africans are enjoying active, vital lives after retirement – whether this is starting a new business, or investing or travelling more.
However, as a life stage or a milestone, retirement does require some planning. Most people do not wish to rely on their adult children or the state for our later years. Which is why we should encourage clients to start thinking about the day they will not be earning a regular monthly salary, and replacing that with an annuity income to cover monthly expenses.
Of course, there are a few investment choices that can create this new income stream, which may include rental properties, unit trusts, or provident fund and income-wrapped retirement products. It is important to investigate and identify the right product for your clients, their anticipated needs and other factors. This is where your skills as a professional financial advisor can add significant value. However, what most retirees do not want to do is dig into their capital and, if they do, they want a view of how any investment will generate an annuity income.
What is also extremely important to retirees is certainty - and that is where cash can be an amazing asset class for retirees, because their capital is guaranteed and their income stream is very predictable. For example, on a fixed interest account, they will have the consistency of that interest paid out to them monthly.
I must concede that many people approaching retirement age in South Africa do so with some trepidation. Taking a broader view of South Africa’s economic and political landscape – with business confidence low as we come out of a technical recession, and a lower interest rate cycle – there is a sense of anxiety.
In times of anxiety people often look for a safe haven for their investments and cash is often identified as safer, more reliable option when compared to other volatile options, which rely on equities or dividends. And even though we are seeing lower interest rates, these have not dropped on too steep a curve.
In a more volatile political or economic environment, knowing where your clients’ income will be coming from is even more important. Rather than focusing on the uncertainty, seize the opportunity to reassess your clients’ retirement plans and help them start making conscious and positive decisions about the future. While it is always a good idea to diversify their savings and investment portfolio, cash should not be dismissed or overlooked in the current climate.
Not all deposits are created equal, and it is worth your time to shop around and compare different products and banks on behalf of your clients. You should factor in brand security, liquidity needs and products or service providers that offer your clients the best rate or a pensioner’s rate. While equities will generally outperform cash in the long term, cash is attractive for the short-term needs of a retiree as it offers more stability and peace of mind.
I believe the topic of Retirement Month is relevant and timely, as it sparks conversations and helps clients to think about the future. Regardless of their age or income level, your clients should be thinking about maximising their savings and making the most of it.