Longevity adds to retirement burden

LIVING longer can become an expensive business. At the fourth Ready, Set, Retire conference hosted by Alexander Forbes in Port Elizabeth yesterday, research and product development managing director John Anderson said the main objective of retirement funds was to sustain a retiree's standard of living.

However, he said financial advisers and retirees had to deal with an added curve-ball: standards of living had to be maintained for much longer.

Anderson, who was speaking at the conference at the Radisson Blu hotel, identified some of the major risks affecting retirement income as longevity, inflation and consuming more than your financial plan could sustain.

The cost of retirement provision had increased dramatically in recent years due to increased longevity, he said.

Higher-income women, who retire at age 60, can live on average 27 years into retirement, and men on average 22 years.

"The next generation will not be able to comfortably retire at this rate. It is simply not affordable for most South Africans, who will have to end up working for longer," Anderson said.

Studies predicting that retirees needed only 60% of the salary they earned before were based on a myth. "The vast majority of South Africans spend the same or more than the salary they earned before retirement. I am sure many retirees will agree with this.

"Many, for instance, help with contributing towards the education of their grandchildren," Anderson said.

Coupled with a retired person's longer lifespan, medical inflation had increased so much that in some cases entire retirement incomes were equal to just the private medical expenses of retirement.

Head legal adviser Jenny Gordon said it was important to combine pre-tax and post- tax strategies to maximise retirement income.

"We need both pre- and after- tax investments for retirement – pension funds are excellent springboards, but they usually need a top-up. One can get optimum income by combining these strategies," Gordon said.

Retail sales and distribution investment solutions head Gareth Johnson said inflation was the biggest reality to worry about when planning for retirement.

He said other forms of investment for retirement were investing in property, bonds, equities and cash. All had various degrees of risks and returns, but all assets had a place in a strategic retirement plan. - Cindy Preller