10
Rands & Sense
Adapting your attitude towards money as you age
Buhle Langa
HAVING a financial plan is the first step you need to take when setting out your goals and how you plan to reach them. Your financial plan will change at different stages of your life – it should not remain static. Your needs will look different as you move through various phases of your life: from your early years in your career, to becoming established in your career, preparing for retirement, and your life in retirement. The younger years Investors in their 20s will have at least 40 years over which to accumulate their retirement savings and should focus on growth. In this stage of your life, aim to keep your savings invested in the most suitable investment vehicle for you. Look for consistent long-term performance and keep your retirement savings invested between jobs to benefit from compound interest over the long term. A high allocation towards growth assets such as shares and property and an allocation to global markets could benefit you greatly. During this stage you will focus on planning for and creating your wealth. The choices you make will decide where you ultimately end up in the most vulnerable time of your life, retirement. Consider a healthy contribution rate to your retirement fund of a minimum of 13 to 15% of your salary and investing in more aggressive investments or portfolios. In turn, this should help you reap the rewards of the highest possible returns, compounded over the years leading up to retirement. Middle-age investors People in this phase are starting to earn and spend more and are most likely trying to pay off debt. Because of higher earnings and possible tax savings, first try to top up your compulsory investments (money going into retirement
funds) as much as possible before building on discretionary investments, such as unit trust funds. The retirement years Retired investors want to minimise risk and keep up with inflation. Your main objective would be to choose an appropriate income annuity option (either a life annuity or living annuity) that would best suit your retirement income needs. Two to five years before retirement, your focus needs to shift towards protecting your savings that you have accumulated over the years. This also highlights why withdrawing your retirement savings before retirement is seldom a good idea and can be detrimental to your quality of life during your retirement years. Discretionary investing for rainy days In any life stage, make sure you have enough emergency savings so that any unplanned and urgent expenses do not derail your longterm goals. Being prepared financially makes the world of a difference when you have to deal with a car breakdown, the death of a loved one, or the birth of a child. With the correct financial planning advice, you can structure your investments and insurance without being caught off guard. A Certified Financial Planner can assist in building your financial wellness by analysing your unique financial situation and offering a holistic approach to finding the appropriate solutions for you. The perfect financial plan will not only look at making you financially well during your lifetime, but should also look at making sure that your affairs are taken care of even in the event of death. Langa is a financial well-being consultant at Alexander Forbes.
