Will you outlive your retirement capital?

Solving the Retirement Riddle

For many years investors have enjoyed the benefits of local investment markets which have delivered returns far in excess of more conservative and ‘normalised’ financial planning budgets. Money market – the lowest risk asset class – has beaten inflation by 4% per year, for 25 years! Local equities have delivered almost 9% in excess of inflation, property more than 12%! Which makes the more recent market returns somewhat sobering: negative real returns in 2016 for the average balanced fund, and only inflation matching returns for the past three years.

For investors in retirement these lower returns have started to cause real concern: will their retirement capital be sufficient to last their lifetime?

The boom years made it relatively easy to sustain higher lifestyles and levels of drawings from portfolios, typically out of a living annuity (where the investor takes the risk on the longevity of their capital). High returns hid the fact that the majority of retirees were under saved, overdrawing, or both. As it stands the average living annuity drawing rate in SA is about 6.5% per year, in excess of the recommended guidelines.

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