This highlights the need to do proper financial planning prior to retirement and make sure you are invested in the appropriate funds to manage market volatility.Rita Cool, a certified financial planner at Alexander Forbes, says most members of pension or provident funds are most likely invested in the fund’s default investment option.
Cool says the most important thing to remember is that you can defer retirement from the fund. Even if your employer requires you to retire at a specific age, you do not have to take your retirement funds immediately when you retire – only when you need to receive an income or need your cash in a lump sum.
If it is your intention to transfer your retirement benefit into a market-related living annuity, the current volatility will not matter significantly, as you are remaining invested in the market for most of your life and therefore not realising your losses. If your plan was to purchase a guaranteed annuity, your retirement fund should have been moved into cash and bonds as part of the life stage model or in terms of your retirement planning.
“It was not designed as the panacea for all those who did not save enough for retirement,” says Mabophe, who adds that, even during extreme market conditions, a drawdown rate of 2.5% should comfortably be funded from dividends generated in a pure equity portfolio. The impact will depend on the underlying portfolio, and a well-diversified portfolio with cash and bonds will be better protected.
“Clients must mentally prepare for the worst – a long downward market as we start to understand the impact on the global economy. We must face the fact that markets are becoming more volatile. This kind of volatility is now a feature of our lives, so we must try to build it into our financial plans,” says Veldtman.Cool says guaranteed annuities are offering particularly good rates.
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