The local annuities market has grown over the last few years. At the same time, fewer individuals are opting for conventional life annuities, which is quite interesting since conventional life annuities are the only products that provide guaranteed returns for the rest of the retiree’s life. However, these products tend to be expensive (particularly ones that adjust for inflation) and income yields are low.
While some people are prepared for retirement, most are not saving enough. These retirees hope that the market will make up for any lack in capital and are opting for living annuities, which offer more flexibility and the potential to earn higher returns.
The real issue here is a lack of savings. If you find yourself in this category then don’t despair: Proper planning and rational investor behavior can help you manage the problem.
The key is planning
Investors need to examine their financial positions and speak frankly about their options long before they retire. This may be a painful exercise but will present you with more options and ultimately choices. Having as much information about where your funds are invested and what the best performing unit trusts are, help make these choices less daunting. Think about how much you have saved and how long you will need support yourself during retirement. The key risks most retirees face are outliving their money and inflation eroding their savings. Developing a plan will help you account for these risks. As our life expectancy continues to increase it is advisable that you limit your consumption during the early retirement years.
Facing the facts
A lot of capital is required to enjoy the same lifestyle after retirement. If you retire with less than you need you can offset it by drawing more income early on, but this is not sustainable. Spending too much after saving too little is guaranteed to end badly.
You can consider delaying your retirement a few years to save a bit more. It tends to be easier to extend your career rather than go back to work after retirement. This may not be the most attractive option available, but it allows you more time to save, less time to live off those savings and gives your capital more time to grow.
You should not underestimate the impact this extra time will have on your savings. Extending your career in your twilight years may not be that appealing, but it is a better option than having to survive on a low retirement income or running out of money too soon. While some factors may be out of our control we can at the very least influence the longevity of our savings.