Did you know that only 6% of people in a room of 17 are likely to retire comfortably? Discover the key financial decisions that can make or break your retirement plan.
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If you’re in a room of 17 colleagues, only one of you (6%) is likely to retire comfortably, shows the 10X Retirement Reality Report.
The differentiator probably isn’t salary or savings rate, it’s how that person managed their money, particularly once they stopped working.
People are also living longer: Over the past two decades, life expectancy has climbed by 13 years, which means many retirees will need their savings to last longer than they expected, adjusting for rising healthcare costs and cost of living.
What drives that 94% retirement shortfall is rarely due to one bad financial call, but a series of smaller decisions that worsen the situation over time.
Here are a few retirement mistakes that make a big difference to your retirement outcome:
The choice between a life annuity and a living annuity can have a big impact on retirement. It is also irreversible.
A life annuity pays a guaranteed income for life. The insurer carries the investment and longevity risk, but you have no flexibility.
A living annuity keeps your money invested and gives you control over how it’s allocated and how much you draw each year, within the legal range of 2.5% to 17.5% of your capital. The upside of market returns is yours, but so is every downside. If you draw too much too soon, or your investments underperform, that will have a negative impact.
Most people make this call based on what works right now, a higher initial income or the appeal of flexibility, without considering what that decision might mean later in life. A living annuity might provide comfortably at 65 but become precarious within a decade if the drawdown rate was never realistic. In practice, this decision involves considering how much longevity and investment risk you may be willing and able to take
The assumption that your costs are lower in retirement is one of the most damaging myths in financial planning.
Statistics South Africa’s data on non-communicable disease burden shows that healthcare costs increase with age. But that’s not all.
The early years of retirement also tend to be the most expensive, with travel, leisure, and lifestyle spending that active retirees might have put off for decades. Then there’s a quieter middle period. Then, for many, a sharp and often unexpected rise in care-related costs.
Those are three distinct spending phases, but most retirement budgets plan only for one.
Building a retirement budget that factors in all three stages, and separates needs from wants at each, is generally considered sound financial planning practice.
Drawing down heavily in the early years of retirement and hitting a poor run of markets can permanently impair a portfolio that might otherwise have recovered. This is sequence-of-returns risk: two retirees with identical savings can end up in very different positions depending purely on when they retire. Compounded over 20 years, an unsustainable drawdown rate can tap out a retirement.
One popular rule of thumb says you can safely withdraw 4% of your portfolio in the first year of retirement, then increase that amount with inflation each year, and your money should last 30 years. That rule comes from US research (Bengen in 1994 and the Trinity Study of 1999) based on historic American market returns, inflation and tax rules – not South African conditions.
Local and international studies show that when you apply the same idea in more volatile markets, or add realistic fees, the margin of safety shrinks, which is why many South African planners now treat 4% as an upper limit rather than a guaranteed “safe” starting point.
Fees are the silent killer of wealth. They’re also the most underestimated variable in retirement planning, and the most difficult to see clearly because they are so layered.
On R1 million invested over 20 years, assuming a 10% gross annual return, the difference between paying 1% and 3% in total annual fees is roughly R1.7 million.
That’s more than the original investment, gone to costs alone. Most retirees know what they pay their financial adviser. Far fewer understand the full impact of costs across every product and platform. A 3% total cost structure across advice, administration, and underlying investments isn’t always visible on your statements, which is exactly why it does so much damage over time.
Retirement doesn’t go wrong all at once. It’s eroded by a series of smaller decisions whose consequences only show up years later. The wrong annuity at 65. Healthcare costs that weren’t planned for. A fee structure that was never properly unpacked.
The retirees who stay financially secure aren’t necessarily wealthy or lucky. They understood what was at stake, took fees seriously, and revisited their plan as life changed.
Getting there is easier with the right advice. A qualified financial consultant can help you avoid the mistakes that are hardest to see coming.
This article is provided for general information purposes only and does not constitute financial advice as defined in the Financial Advisory and Intermediary Services Act (FAIS). The statistics and research cited herein are for informational purposes only. Past data is not indicative of future outcomes. This information does not take into account your personal financial situation, needs, or objectives. Readers are encouraged to seek advice from a qualified financial adviser before making any financial decisions. 10X Investments is an authorised financial services provider, FSP license number 28250.
Andre Tuck, Senior Investment Consultant, 10X Investments.
Andre Tuck, Senior Investment Consultant, 10X Investments.
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