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Johannesburg - If there really was some magic number for how much money one would need to have invested to retire comfortably, one would likely not need a financial adviser, according to Johann Burh, regional head at The Wealth Corporation.
Then one would simply have to save and invest until you reached that magic figure and then retire and relax.
A magic retirement number would make many other key financial decisions in life far simpler.
"Can you afford to send your kids to private school? Can you afford a bigger house or a more expensive car? If any one of these choices boils down to you coming up short for that magic retirement number, the decision is simple. Unfortunately, the reality is far more complicated," said Burh.
"In the financial press much focus is placed on investment generating returns, and for good reason. However, cash flow is a two-sided coin. Equally as important as cash inflow is cash outflow."
Each person’s retirement "number" is, therefore, different and is dependent upon their monthly expenses and lifestyle goals. One needs a cash flow matching investment solution for your retirement plan, and the amount you need to have invested needs to correlate with your anticipated rate of withdrawal.
"It is very challenging to try to estimate how much money you will require to meet your lifestyle goals and living expenses in retirement. Inflation is a key reason for this. Your best bet is to estimate what you will need in today’s terms and factor in the anticipated rate of inflation," said Burh.
"This requires sophisticated financial planning software and is not something the average person is equipped to do by themselves."
Just as no person is alike, so no financial plan should be alike either. Each person has different priorities, varying risk management requirements and tolerances, and unique lifestyle goals. In addition, your finances should not be your sole consideration.
"To create a comprehensive retirement plan you need to take cognisance of your practical and emotional needs as well. Your adviser should have a clear understanding of your support system of family and friends, your state of health, your current and future work opportunities, your interests and hobbies and so on, in order to help you to adequately prepare for the future in all respects," said Burh.
How are you going to spend your time when your work commitments come to an end? Where would you like to live and is this somewhere that your family and friends will be able to access easily?
Will you have the financial and practical support that you need should your health fail? These are all key questions that require answers and your advisor should help you to find them.
Retirement calculators are useful tools to promote financial literacy and illustrate the importance of saving and investing for the long term. Visit The Wealth Corporation's website www.thewealthcorporation.co.za and give its retirement calculator a try.
"Retirement planning is a complex and nuanced process. It involves so much more than helping you to reach a magic retirement number – although some advisors will have you believe that it is and that all you need to do to reach that number is to sign on the dotted line while they wave their wands," said Burh.
"A retirement calculator, however sophisticated, is unable to help you to find the answers to key questions about what your life in retirement will be like. It is unable to factor into consideration the changes you and your family go through as you grow and your needs change."
Burh pointed out that one needs a qualified financial adviser who is able to act as a sounding board for the important financial decisions you make in life.
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