Question:
I will be 65 in August and will probably be kept on for another two to three years. The bulk of my R2.1-million in assets is in a preservation provident and pension fund (Moderate Local and Global funds) which gave me a return of 4.25 percent for the last 12 months.

With conditions as they are, would I not be safer in a straight interest bearing fund? Or do you have an alternate suggestion?

Answer:
Depending on your health you will probably be around for at least another 20 years. One of the biggest mistakes retirees make, is to cut back to extremely conservative investments when they retire. Doing so effectively halts the growth of the money they have saved.

You need to strike a balance between risk and return. While it is safe to say that you should not be investing in high risk products at this stage it is unwise to invest in ultra low return savings products given that you could live for another 20 years or so.

The returns you achieved are indeed low this year, but all investments took a dip due to global market conditions. These types of investments tend to recover in the long term.

I am not privy to the specific investments in your portfolio, but your broker is. You should ask him or her to gauge how they have performed in the medium to long term. If you are not happy get your advisor to have another look at the funds you are invested in.

If you want to get a quick snapshot view of whether you have saved enough for retirement you can do the following calculation:

Take your ending salary when you retire (let’s assume its R20 000 per month) and multiply that by 20 years. So, R20 000 times 12 times 20 equals R4.8-million. Then multiply that by 80 percent. (Experts say that your expenses reduce when you retire). So, R4.8-million times 80 percent equals R3.84-million.

In other words, you will need R3.8-million to sustain yourself for 20 years. This will enable you to enjoy the same lifestyle you had when you were working.

It is vital that the money you have invested keeps growing so you should only withdraw what you need. Doing so will safeguard you if you live until 100 which, by the way, is happening more and more.