What if I’m about to retire and my savings are low?

Defer retirement if you can work longer

If you are within about five years of retirement and your savings have taken a hit with the recent market falls, there are some things you need to think about.

Picture: 123RF/ANDRII YALANSKI
Picture: 123RF/ANDRII YALANSKI

Market falls may benefit younger retirees, but they can cause a lot of anxiety for members who are close to retirement.

If you are within about five years of retirement and your savings have taken a hit with the recent market falls, there are some things you need to think about.

Can you defer your retirement?

If you are able to defer your retirement you can give your savings longer to recover, Michael Kirkpatrick, head of individual consulting best practice at Alexander Forbes, says.

The benefit of this is that you also shorten the period for which you need to provide an income in retirement.

Even if you do some work after retirement and only draw on part of your retirement savings, you can leave the rest to recover.

Consider your pension options

Kirkpatrick says if you buy a guaranteed life annuity – one which guarantees an income for the rest of your life but has no residual value – you will find these annuities are currently offering better incomes than before the market crash.

Deane Moore, the CEO of Just SA, a guaranteed life annuity provider, says a popular unit trust used by pensioners is one that targets a return of 4% above inflation. This fund has lost 4.6% of its value since January.

If someone invested in this fund is retiring and chooses a with-profit guaranteed annuity from Just SA, he or she could find the income that it could provide in January has now increased by as much as 6.9%. This is the case for a 65-year-old who has a 62-year-old spouse and chooses an annuity that provides for an income for his spouse at 75% of the original pension.

This income increase means the person can secure an income that is two percentage points higher than it was in January despite the reduction in their fund value.

Annual increases on the pension provided by this with-profit annuity have been 6.5% a year over the past five years, when inflation has averaged 5%.

Increases are based on investment performance over the past six years, so increases may be lower if market returns stay low, but will improve if market returns do and the six-year average returns improve with it, Moore says.

Retirement fund members who are retiring now and choose an investment-linked living annuity should also consider that some of their capital will also enjoy any future market recovery and the less they draw out as a pension in the next few months or years while markets are down, the more capital will remain to recover. 

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