Navigate retirement with confidence

27th November 2024

Imagine you’re on a highway with guardrails providing a safety barrier that keeps you from going off course. These guardrails guide you safely to your destination. However, when you reach retirement, the guardrails come off, leaving you uncertain. Which direction should you take to ensure the rest of your journey is safe?

For many employer retirement fund members, this uncertainty is all too real. These members rely on trustees’ selected portfolios for their savings until retirement. However, they often choose to navigate the complex post-retirement terrain alone. This can lead to suboptimal outcomes.

The guardrails come off, and uncertainty creeps in. This phenomenon is known as the “default paradox”. At such critical junctures, well-timed retirement benefits counselling can make a massive difference. It can open members’ eyes to their options. Trustees have a vital role to play in facilitating this member education.

The journey to retirement – the road well-travelled

Up until retirement, 87% of members rely on trustees to select an investment portfolio for their savings. About three-quarters of funds have a target income for retirement. Sixty percent of funds align their default investment option with this target. This alignment aims to stack the odds in a member’s favour to help them reach their retirement goals.

Our 2024 benchmark research shows that 71% of umbrella fund clients prioritize protecting members from market volatility. This is often achieved through tools like a smoothed bonus portfolio.

The bottom line? Trustees set up guardrails before retirement, and members are happy to stay within them. Then members reach retirement. At retirement, members must decide which path to take next.

Choosing the right off-ramp at retirement

Retirement is a critical life stage where members face one of their biggest financial decisions: picking a path for their post-retirement journey. This decision typically involves selecting an annuity. Benchmark research shows that 61% of retirees wish they had more support at retirement.

Unfortunately, many members are unaware of their post-retirement options, such as trustee-endorsed annuity strategies. This lack of awareness highlights the need for timely retirement benefits counselling. Such counselling can guide members toward making the right decisions.

Trustee-endorsed options: getting the guardrails back

Trustees must proactively increase awareness of members’ options in both pre- and post-retirement stages. Proactive counselling and fund-supported advice can lead to better outcomes for all.

One way trustees can provide ‘guardrails’ is by introducing members to trustee-endorsed annuity solutions. These solutions offer income in retirement and align with Regulation 39 requirements. Trustee-endorsed annuities are meticulously designed to balance cost efficiency with financial security. Yet, many members remain unaware of these valuable resources.

As a result, members often end up with more expensive products. Trustee-endorsed annuity strategies can offer members the guardrails they need for their retirement journey.

Benefits of trustee-endorsed annuity strategies:

Professional design – Solutions are created by experts who understand the nuances of retirement.
Lower fees – They typically offer lower costs, prudent risk management, and tailored strategies for retirees’ financial goals.
Longevity protection – Trustee-endorsed annuities focus on cost-effectiveness, inflation protection, and long-term security.
Institutional pricing – Institutional annuities are significantly cheaper than retail ones, offering savings of 6% to 27%.

Cost efficiency makes a noticeable difference in members’ monthly income. However, two out of three members miss this opportunity. Life annuities may not be the best option for everyone, but they’re worth exploring in the current climate.

In conclusion

Over the last 12 months, South Africans retiring with life annuities have benefitted from high interest rates. These rates may soon decrease. Members should seize the chance to lock in great guaranteed escalation life annuity rates.

Trustees should amplify awareness of these options. Members need to protect and optimise their hard-earned savings.

Trustee-endorsed options provide the necessary support and security retirees need. Much like guardrails on an unfamiliar road, they guide retirees with confidence through their journey.

Related FAQs: Navigate retirement

Q: How can I effectively navigate retirement with confidence?

A: To navigate retirement with confidence, start by creating a comprehensive retirement plan that includes your retirement savings, expected retirement income and an investment strategy tailored to your goals. Consulting a financial planner can provide personalised guidance to help you navigate retirement.

Q: What role does a financial planner play for me to navigate retirement with confidence?

A: A financial planner helps you create a detailed financial plan that encompasses your retirement account, savings, and investment strategy. They can provide insights on market fluctuations and help you prepare for retirement by advising on how to save for retirement effectively.

Q: What should I consider when planning for retirement?

A: When planning for retirement, consider factors such as your expected retirement age, desired lifestyle, retirement income sources, and investment returns. It’s also essential to evaluate your retirement plan and make necessary adjustments based on your financial goals.

Q: How can I help a friend who is struggling to navigate retirement with confidence?

A: You can help a friend by encouraging them to consult with a financial planner and share resources like a guide to retirement. Offer to assist them in organizing their retirement savings and discussing their investment strategy to help them feel more confident about their retirement plan.

Q: What are some effective investment strategies for retirement?

A: Effective investment strategies for retirement include diversifying your portfolio across different asset classes, considering tax-free savings options and regularly reviewing your investment values. It’s crucial to align your investment strategy with your long-term retirement goals.

Q: How can I ensure peace of mind regarding my retirement plan?

A: To ensure peace of mind regarding your retirement plan, regularly assess your retirement savings and income projections. Engage with a financial planner to help you navigate any changes in your financial situation and to take any action regarding your savings to stay on track for your retirement goals.

Q: What are the benefits of a retirement annuity?

A: A retirement annuity provides a structured way to save for retirement, often with tax benefits. It can help secure a steady income stream during retirement, making it easier to manage your expenses and maintain your lifestyle after your normal retirement date.

Q: How can market fluctuations impact my retirement savings?

A: Market fluctuations can affect the value of your investments and retirement savings. It’s important to have a solid investment strategy that accounts for potential volatility, ensuring that your retirement plan remains robust in both strong and weak market conditions.

Q: What should I do if I’m years away from my normal retirement date?

A: If you’re years away from your normal retirement date, it’s essential to start saving and investing as early as possible. Regularly review your retirement plan, adjust your contributions and consult with a financial planner to ensure you are on track to meet your retirement goals.