Retire: A retiree’s investment journey – Part 2

Carina Jooste Latest, Retire

In the second of our three-part series, we’re going to look at Rodney’s financial journey leading up to his retirement. You can read our first story of this series here

Introducing Rodney 

Rodney worked as a software implementation specialist until he retired at 64. It’s fair to say that he had a leg up when he entered life as a working man: In his final school year his economics teacher urged them to start investing and saving when they started working. So Rodney’s saving regime started with his very first 1st paycheque.

Unfortunately, those savings went into expensive endowment policies which were sold to him as savings vehicles. Nevertheless, a good financial habit was established early on. 

Rodney started to review his investments in the early 90s. “I had about 10 of these endowment policies which were effectively worth less than what I contributed. I closed them and started looking at supplementing my pension with a retirement annuity (RA) for tax purposes, and I started saving via the Satrix platform.” 

During this time, Rodney also changed jobs and invested his company pension in a legacy RA. He feels this was a big mistake, but back then, low-fee RA products were scarce. “The growth was pathetic and they worked on the projected performance – not actual.” When a legislative amendment in 2007 allowed RA’s to be transferred, Rodney grabbed the opportunity. He transferred his RA, and the new fund management company managed to claw back some losses.

Investment decisions upon retirement

“The last few years have shown that you could lose all your gains in the market due to poor local and global political decisions. So I felt that I couldn’t fully depend on the money invested in a living annuity.” Instead, Rodney used 60% of his retirement savings to purchase a guaranteed annuity, and 40% went to the purchase of a living annuity. 

The guaranteed annuity includes a 4% yearly inflation increase, guaranteed  for 15 years. This is used to cover Rodney’s monthly expenses. “I calculated that after 15 years, the guaranteed annuity payback would more than cover the amount I paid for it.”  

For his living annuity, Rodney initially invested in an Allan Gray living annuity. But he moved it to Sygnia Skeleton 70 in January 2021 in response to Sygnia’s lower fees. At the time Sygnia was offering fees of 0.53% , while fees at Allan Gray were 1.42%. He currently draws down 2.5%, and will have to increase it to 4% in 2022. However, 5% is the drawdown limit he has set for himself. “I will review my living annuity yearly. If the growth doesn’t keep up with my current drawdown needs, I’ll look at buying a guaranteed annuity instead. But when I reach 70 I think I will buy a guaranteed annuity either way.”  

Looking back, Rodney is happy with how he invested his retirement savings. His guaranteed annuity covers his monthly expenses, and gives him the peace of mind he needs. “The living annuity is what worries me the most, and that’s why I will most likely convert to a guaranteed annuity. Also, I think when we hit our 70’s and 80’s, we can’t be sure of our mental capacity. That’s not the time to have issues with a living annuity! Also, a guaranteed annuity pays me more for the same amount, than the living annuity at a 4% drawdown rate.”

Rodney’s golden nuggets to keep in mind

  • Educate yourself about your money when you start to earn money (and save a bit more than what I did).
  • Don’t overlook the effect of higher fees on your investments – that 1% seems a little but means a lot.
  • Don’t rush your investment decisions when you retire – take your time.  Read and ask questions regarding retirement money – use sources like Fat Wallet, MoneyTree and Stealthy Wealth.
  • You can do most of your retirement investment yourself. This will cut down on lots of fees. For the same guaranteed annuity investment process I did, a friend paid an insurance company a one-off fee of R10,000 followed by R25.00 p/m.
  • Don’t be led by people who try to convince you to purchase a living annuity – look at a guaranteed annuity as well. Most people I spoke to were quite surprised that the payout was better.
  • When reviewing your guaranteed annuity options, get the insurance companies to compete with their quotes. It may only be a couple hundred rands, but everything helps over the long term.

Retire blog

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.

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