Retirement Planning

The practical planning process

Just a few years ago a survey was performed on a representative sample of 65 year-olds and the following startling facts were uncovered:

  • 47% were dependent on relatives
  • 31% were forced to continue working
  • 16% were dependent on a state pension
  • 6% were financially independent.

It is safe to assume that this situation has not changed much since, as the ravages of inflation and taxation have worsened over the years.  These figures clearly illustrate the dire need for retirement planning, and would intimate that almost every person we meet would require some kind of advice regarding their future retirement.

Retirement planning is more than simply contributing to a pension, provident or retirement annuity fund.  The knowledge required to assist you in the planning of your retirement is a mixture of tax law, compound interest and time value of money calculations and investment strategy.  We can also advise you in respect of your personal planning for retirement at different stages.  Thus we can say that there are three stages of personal financial planning retirement advice.

  • Planning for retirement

A person who is say 36 years old will probably need advice on how to make sure that they have sufficient “retirement capital” on retirement date to ensure that they will be able to retire with an income that will enable them to live comfortably after retirement.

  • Planning at retirement

A person who is close to their retirement date may want to know what impact income tax will have on their retirement benefits, whilst a person at retirement may want to know how much tax free lump sum is available, how much to take as a lump sum versus an annuity and what type of annuity to choose.

  • Planning after retirement

A person who has already retired will need investment advice in respect of his retirement capital.

The person planning their retirement may make sure that the retirement funds of which they are a member will provide the level of income that is required after retirement.  If not, additional provision must be made by way of contributions to another retirement fund or another suitable investment vehicle.  One of the first things that we will do is to determine the value of the retirement capital that you will have available on retirement date.  We will then use financial planning software to compare it with the amount of capital you will need to provide your expected level of income after retirement.

Determining your retirement goals

It may be very easy for you to state that you require 75%, or 80% or even 100% of your income before retirement to be able to maintain your standard of living after retirement.  This does not, however, mean that you has any real perception of their own needs or goals at retirement.  To ensure your active involvement in planning for your retirement we will:

  • determine your current income requirements
  • determine your anticipated income requirements at retirement.

Wewill, however, take into account other circumstances which may change when you reach retirement, eg. your bond may have been repaid or your children no longer be dependants.

Source: The South Africa FINANCIAL PLANNING HANDBOOK 2010