When you plan for your retirement, it is wise to consider certain risk
factors, Marius Wentzel, of Investment Frontiers, says.
These, he explains, are factors that can influence your retirement planning
and which you can, sometimes, but not always, plan around.
Currency risk is probably one of the most important factors to take into
account in your retirement funding, Wentzel says. To realise this, you need
only go back 25 years to the days when a dollar cost you only 80 cents.
He says you should not underestimate the importance of protecting your
money against currency depreciation by making appropriate plans.
Similarly, Wentzel says, investment risk is not a matter which you can do
much about from a market point of view, but you can keep it in mind from a
planning point of view.
Other risks you should keep in mind in your retirement planning, he points
out, include the risk of disability (if you have not provided for
sufficient cover and you do become disabled, it can ruin you financially),
the risk of forced retrenchment and the risk in the legislative environment
- for example the introduction of capital gains tax.
And, he warns, it is surprising how often people are lured into
participating in so-called get-rich-quick schemes. This is one risk which
is totally within your control, he says.
``If it sounds too good to be true, remember that it usually is.``
Investment risk, Wentzel says, is also a factor which you can do something
about from a planning point of view.
For example, you can invest in options
that are suited to your particular risk profile. The longer your investment
horizon, the more you can be exposed to the equity market because you have
a longer period to recover should there be a drop or fall in the markets.
Wentzel says you should ask yourself the follow questions when you plan
your retirement objectives:
* How much capital will I need at retirement? To get by, Wentzel says, you
should keep in mind that you will need 10 to 15 times the annual revenue of
your last salary;
* Will my pension fund be sufficient? Mostly the answer to this question is
``probably not``;
* Are retirement annuities the only alternative for retirement funding? The
answer here, is ``no``, but they are probably the most tax efficient
alternative;
* Is it too late to boost my retirement funds? It is never too late, but
the sooner you start the better;
* How can I boost my retirement funds? Mainly by taking your extra
disposable income and investing in instead of spending it;
* Which retirement income option should I choose? The guaranteed income
option is the safest with full market exposure options being the most
risky. Somewhere in between you can get a guaranteed income level combined
with some risk;
* Who can help me structure my retirement effectively? Get the help of an
expert adviser;
* Am I going to outlive my capital? This will depend on several things,
including the income you choose to take from your retirement savings;
* How can I construct an optimum investment portfolio? Get the help of a
good financial adviser and work out your needs and objectives; and
* How should I manage my medical expenses? In retirement, your medical
expenses are most severe. Look for whatever options are available to cut
down on costs, like asking for cash discounts at pharmacies and staying
healthy.
Wentzel says you can think of retirement as the Comrades Marathon. Start
working out your programme as soon as possible, set your objectives, do
regular analysis of your progress and speak to professionals to help you
along the way.
The keys to a successful retirement savings plan, he says, are:
* Start young;
* Don`t just rely on your employer for your savings;
* Think about retirement during the course of your working life;
* Do regular reviews of your position; and
* Speak to the professionals.