Longer lives squeeze funds in retirement
Almost all of us are living much longer and, says Emma Heap, head of growth at 10X Investments, so retirement planning should be keeping pace to provide for this.
So, Heap asks: “What is it going to be: work much harder, toil in the salt mines for many more years or live a more frugal life? Or how about just being smarter about your retirement planning.”
The World Health Organisation puts average life expectancy at birth for South Africans at 60 for men and 67 for women. But this is not the most reliable measure for retirement planning. It’s dramatically skewed by factors such as economic class, with people living in poverty suffering a disproportionate share of early deaths.
Heap says: “A more meaningful measure might be that in South Africa today, if you retire at 60 your life expectancy is 20 years. And, if you have a partner, there is a 50% chance one of you will be around at age 90.”
So the risk of outliving your savings is increasingly serious. “But the bottom line is we are living longer and we need to save more, whether that be longer, harder or smarter … or, best of all, a combination of the three.”
When it comes to making smarter choices, there are quite a few options. Keeping costs low might sound obvious, but “you would be surprised how many people don’t know what their retirement investments cost them”.
When it comes to choosing a retirement savings product there is a smorgasbord of choices. “The basic principles of investing are not complicated. Don’t believe you are not smart enough to understand products and the fees you pay for them,” she says.
Rather ask questions, demand answers and interrogate choices .
Disruption of the industry over the last decade means that simple, low-cost options, such as those offered by 10X Investments, do exist. A lot of research has been done by the industry and the media, and much of it is available at the click of a mouse.
Heap says long-term success in investing rests on a few simple principles: invest according to your time horizon, choose index funds, which consistently outperform most managed funds in every market including South Africa, and minimise costs.
She points to the importance of determining the right asset mix to match your investment time horizon. A good balance would be to own a high equity portfolio for the long term (five or more years), and a lower equity portfolio for time horizons of less than five years.
She adds: “Nothing impacts whether we will outlive our savings quite as much as the effect of fees. 10X Investments charges 1% in fees against the industry average of 3%. While 2% might not sound like much, the end result can be 40% less in your retirement savings pot.”
Emma Heap is the Head of Growth at 10X Investments