Outlive Your Retirement Savings

Do you ever wake up in a cold sweat at night wondering whether you will outlive your retirement savings? Rest assured that you are not alone. 

There is an old story about a client who asked his financial advisor if he had enough savings to finance his retirement. Of course you do, responded the advisor, providing you die within the first six months of your retirement! 

We may laugh at this, but there is a very real concern among many people as to whether or not they will outlive their retirement savings. Many of us will need more income during retirement than previous generations did, due to longer life expectancies and rising health care costs.

Here are some strategies to consider:
  1. Delay your retirement: 60 or 65 at the very latest have been the traditional retirement ages. That is fine if the average life expectancy is 70, but what happens if you end up reaching three figures from an age perspective? Delaying retirement has many benefits. It gives one a longer time period to save and to let your investments work and grow, as well as giving one a shorter period over which retirement needs to be financed. Working for longer, for many people, will be more palatable than having to save a crazy proportion or one’s income.
  2. Redefine your retirement: Retirement used to be a welcome reward for 40 or so years of drudgery and enduring the so called rat race. Looking after the garden or playing golf six days a week may seem appealing when one is subject to the constant stress of a heavy workload. However, it soon loses its appeal and boredom quickly sets in. Spending some time consulting in your specialist field, or starting a second career that is not capital intensive can be a major positive for retirement sustainability. Five or ten years of financing your living and lifestyle needs from consulting income, and letting your retirement investments continue to grow can do wonders to the retirement cash flow forecasts.
  3. Ignore inflation at your peril: Traditional retirement investment advice was to de-risk one’s portfolio and avoid so called risky assets such as equities. However, the danger of this strategy is that relying solely on cash and bond yields will not sufficiently protect the portfolio from the effects of inflation. The savage effects of inflation will severely deplete the effective buying power of the retirement investment portfolio. To effectively invest over the long term, one must expose a portion of the portfolio to growth assets such as equities.
  4. Manage Expectations: There is no such thing as a free lunch and one cannot live and be merry in retirement when the capital pot is not sufficient to finance the lifestyle. Being realistic about the level of income that the retirement portfolio can sufficiently fund over the retirement life expectancy is absolutely essential. It is true that the future is uncertain and nobody knows the exact date in which one goes to meet one’s maker, but living like there is no tomorrow is foolhardy and not a good idea.
What is the common thread that runs through all of these strategies? It is having a plan that is real, relevant and flexible, taking professional advice around the set-up and maintenance of such a plan, and then monitoring the progress of the plan along the way.

This advice first appeared on FNB blog. 

Author: Tony Barrett is a highly experienced and successful wealth management advisor who believes passionately that it’s not all about the numbers. He specializes in blending holistic financial planning, wealth and asset management solutions into appropriate structures that enable an individual to have peace of mind. He is a qualified Chartered Accountant with international experience and a unique ability to crystalize a set of financial circumstances into a viable plan of action.