Longevity – is it really a threat to your retirement nest egg?

Mayo Twala
By Mayo Twala September 8, 2016 15:04
Nonhlanhla kunene | 8 September 2016

It sounds like the stuff of science fiction blockbusters, but the first person to live to 150 has already been born – at least according to Aubrey de Grey, chief science officer at the UK’s Sens Research Foundation.


Sanlam’s Benchmark Survey 2016 confirms that between 1950 and 2015 our average life expectancy increased by 20 years. The prospect of living longer has important implications for our investments, particularly the need to sustain ourselves financially in retirement years that will be longer than anticipated.

Calls for the need for new retirement models are on the rise while others believe the longevity issue has been blown out of proportion, suggesting that while retirees are indeed living longer, it’s only by about two to three years.

So, should we be celebrating the prospect of an extended lifecycle or dreading the possibility of a bleak retirement?

TC van der Walt, portfolio manager at Emperor Asset Management, feels there’s no need to panic and that the available retirement products are sufficient. “The appropriate products are available but investors do not always select the appropriate assets or live a financial lifestyle to account for a longer life span,” he says.

Anil Jugmohan, senior investment analyst at Nedgroup Investments, concurs. He says investors should do the hard work up front to ensure they’re invested in the right funds, with careful cost reduction at the core of the decision-making process.

Van der Walt believes that the longer the investment horizon, the more “risk assets” can be allocated towards retirement, emphasising that despite the risk that comes with investing in equities, they still provide the best returns over longer periods.

Jugmohan warns, however, that while investing in funds with higher risk can achieve higher returns, investors should be careful “that they understand these risks appropriately”.

If the issue is not with the available retirement products, how should investors be tackling their retirement savings to ensure they’re adequately prepared to meet their financial obligations throughout retirement?

Both Jugmohan and Van der Walt agree that it boils down to saving more and spending less. Over and above that, Jugmohan says investors need to be prepared for unexpected emergencies, which he says come up “alarmingly regularly if you think about it”.

He also highlights the importance of controlling the urge to compete with friends, family and neighbours, stressing that investors should always consider the long-term financial impact of their emotional-based, short-term decisions. “Be very cautious before taking on more debt; rather try to pay down existing debt as fast as possible.”

Van der Walt believes it’s all about starting early and maximising on your investment by putting away as much as you can afford. He suggests investors should take advantage of tax-free savings accounts, steer clear of credit card debt and try to cut unnecessary expenses.

“How much you contribute to your retirement account now makes a big difference over time. Make sure that you understand the compound interest effect. As Albert Einstein says: ‘compound interest is the eighth wonder of the world, he who understands it, earns it… he who doesn’t… pays it.’”

Van der Walt has a few more pointers to ensure an investor’s financial wellbeing throughout the retirement years. Investors should:

  • Make sure they don’t overspend in the first few years of retirement;
  • Honestly audit their spending; and
  • Make time, at least once a year, to fully analyse their current retirement situation.

For Jugmohan, it’s also about lifestyle. He says investors should pay attention to their health, and make the necessary lifestyle changes as soon as possible. “Insurance companies premium-load clients with poor health who wish to purchase life insurance, so be warned,” he concluded.

Mayo Twala
By Mayo Twala September 8, 2016 15:04

Brought to you by

Follow us!

A beginner’s guide to ETFs

A tax-free investment you didn’t know about