The style of shoes we wear changes as we go through life: From trusty Toughees, risky nightclubbing heels, to something more in line with our 9-to-5, until we ultimately opt for a sensible, and dare I say it, comfortable pair.

The same goes for the assets in your portfolio as you move through life.

But times have changed. People are living (and working) longer. So should you be wearing your almost-retired shoes when you’re still in your 50s?

“There is a case for being less conservative when approaching your retirement date. This may be in your late 60’s, which means less need for caution in your 50’s,” says Craig Gradidge, Investment and Retirement Planning Specialist from Gradidge Mahura Investments. “Caution close to retirement date is necessary from a practical perspective.”

As people are living longer, guaranteed annuities will most likely form part of an overall retirement solution. Gradidge points out that this requires a more cautious approach to funds earmarked for the purchase of a guaranteed annuity.

But let’s take a step back to the salary-earning years. How should your life stage shape your investment?

In your 20s and 30s

The key principle in your 20s and 30s is to get maximum exposure to growth assets, like equities (local and offshore) and property (local and offshore). Gradidge also suggests investing regularly in a portfolio of high-dividend shares or an ETF like Satrix Divi Plus (it’s also a tax-efficient income source in retirement).

However, the most important action at this stage of your life is to start saving for retirement as soon as you can.

“By starting younger you get the markets’ to pay for your retirement. A younger investor could get as much as 90% of their required retirement capital paid for by the market (in the form of returns) thanks to the power of compounding.”

In your 40s and 50s

During your 40s and 50s, try to include some exposure to bonds, in addition to high (but not maximum) exposure to growth assets.

“Bond yields are tax-free in a retirement product, so investors will benefit where yields are attractive”.

If you plan to retire in South Africa, you should also consider including offshore investments.  This is because “the currency weakness that happens between investing and retirement will be tax-free (assuming this remains unchanged). That is an expected 4-5% p.a. tax-free return given the long-term history.”

In your 60s

Even though you’re turning down the dial on growth asset exposure, you can still have some exposure to growth assets during your 60s. But be cautious when you’re getting closer to your retirement date.

Retirement 

During retirement, your income requirement and life expectancy should determine the types of asset class exposure for your portfolio. At this stage Gradidge suggests a portfolio comprising income funds and multi-asset unit trust funds (to provide capital growth, and income), retail hedge funds (for capital growth and portfolio diversification), and an income-guaranteed product (to mitigate longevity risk). This would include local and offshore asset exposure.

Keep tax top of mind – always

The tax implications of your retirement investments should be considered long before you retire. Gradidge suggests including several financial products in your retirement planning, so that you can benefit from as many tax relief options as possible. For instance, if you only have an annuity, the income you’ll receive from the annuity will be taxed according to the tax tables. However, if you also have a discretionary portfolio, you could benefit from capital gains tax (CGT) and interest exemptions. And let us not forget the tax-free delights offered through tax-free accounts.

In closing, try to schedule regular portfolio check-ins with yourself or your financial advisor. Life changes with every year that goes by, so to make the best of what you have you need to regularly check-in with your retirement plan and portfolio.

Saving for retirement is the biggest investment most of us will ever make. Sadly, it can also be very complicated. In this monthly blog, Carina Jooste responds to common retirement questions, ranging from which products are best suited to different circumstances to efficient tax treatments.