While annuity solutions have been the primary source of retirement income for South Africans for decades, they tend to receive criticism for not keeping up with the evolving retirement landscape. Yet the local annuity market has undergone considerable change in recent years to address the increased risks faced by retirees and to cater for their individual needs.
The main challenge at retirement is to convert savings into a stream of reliable income that will last a lifetime. People who retire have to consider an income level that will cover their immediate income needs, maintain their current standard of living and that will also last for as long as they live.
Liquidity refers to how easily an investor can sell an asset, for example a house, shares or unit trusts (collective investments) for cash, which can then be used to meet either ongoing expenses or an emergency once-off expense. If the asset takes a significant amount of time to sell or the investor experiences a loss when selling, then this is referred to as liquidity risk.
When investing for retirement there are various risks that investors and their advisers need to consider. The most obvious is market risk as this is not only visible on a day-to-day basis, but also forms a direct part of the financial planning process when a risk analysis is conducted by the adviser. There are, however, other risks that can be detrimental to the retirement journey, namely inflation and longevity risk.
An increasing risk in retirement is that you will outlive your savings. More retirees feel less confident now that their savings will last, highlighted by a 10% year-on-year drop in confidence reported by retirees in Just SA’s latest Retirement Insights study.
For many years retirement annuities (RAs) have formed part of investors’ retirement savings plans. These products have increased in popularity and you should probably consider having one in your investment portfolio. In these times of profound economic uncertainty, Roenica Tyson, Investment Product Manager at Glacier by Sanlam, says it’s never too early (or too late) to start saving and adding an RA to your retirement savings plan.
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