Over the next six weeks Personal Finance will be publishing a series of
articles based on presentations made at the recent Retire Rich seminars.
These seminars were held around the country and hosted by Personal Finance
and Investment Frontiers from Old Mutual. The first article, written by
Bruce Cameron, is based on the speech made by Dean Richards, general
manager of Investment Frontiers, on the necessity of planning early for
retirement.
There are three main objectives of retirement - health, wealth and
happiness, Dean Richards, general manager of Investment Frontiers, says.
But achieving the three objectives is not so easy, Richards says. The first
step to achieving success is to accept that there are three stages of
retirement. These are:
* Saving for retirement:
Saving for retirement is no longer a matter of paying into a retirement
fund and receiving a pension on retirement. With the move to defined
contribution retirement funds (which means you have to invest your
retirement money rather than being guaranteed a set pension) you have to
take responsibility for ensuring you have sufficient money on which to
retire. Added to this is the complexity of financial services products. If
you want to get it right, you have to plan properly, early and base your
plans on sound advice.
* Pre-retirement rush:
Some lucky people start adapting for retirement at least 10 years before
their retirement date. But mistakenly, many people make their final
retirement plans in a rush a year or less before actual retirement. In
reality this is too late. You should start planning your retirement early
on to ensure health, wealth and happiness.
* Retirement:
This the final stage in which your health, wealth and happiness will be
defined by how you handled the previous two stages. However, retirement is
not the end of financial planning, and you will still have to actively
manage your finances to ensure you have sufficient to last through your
retirement years.
Richards warns that retirement planning is not a static affair as there are
many factors, over which you have little control, that can affect your
retirement plans. Because of potential changes, you need to revise your
plans before retirement and after retirement. In fact, you should
continually revise your plans to take account of factors including:
* Longevity: People are not only living longer but many are also retiring
at a younger age. This means that you will need more money to ensure you
have sufficient for the increased number of years you will be in
retirement.
* Retirement vehicles: The world of retirement financial vehicles is
dynamic. New products come onto the market all the time.
* Global village: International investment is now the present. You must
invest in offshore markets to get diversity and to reduce investment risk.
* Flexible investment choice:
Investors now have many more choices. In the
past, people saving for retirement had one or two investment choices but
now you have a vast array. As an example, the Investment Frontiers
Retirement Capital Portfolio provides a number of stand-alone investment
vehicles which can also be mixed and matched.
In addition, you have the
option to change your mind later and to switch between the different
investments.
Within the portfolio there are seven basic choices, which have underlying
selections.
These are:
* A choice of five risk-adjusted funds from high-risk, aggressive to a
low-risk defensive fund;
* A choice of multi-manager funds which make use of the best asset managers
to manage investments;
* A choice of nine international funds which make use of asset swaps to
invest in different economies, asset classes and sectors around the world;
* A choice of eight local specialist funds:
These are funds which invest in
specialist sectors, for example, shares in financial services companies;
* A choice of capital guaranteed products, some with returns guaranteed;
* A money market fund; and/or
* A choice of 35 unit trust funds from different companies.
Richards says that with the choices available and all the external factors
that can affect your retirement plans, you need to be properly advised
about the best options.