Very few South Africans begin their retirement with sufficient capital to last the distance. It is imperative that an appropriate asset allocation is achieved and that the chosen draw down amounts are sustainable.
Michael Summerton from Allan Gray has a similar view. In his recent article entitled How to ensure your retirement income goes the distance, Summerton explains how there are various factors that influence the level of income that can be drawn in retirement and how long initial capital will last.
In this article, he covers the theory by William P. Bengen, US Author and financial advisor, who conducted extensive research to identify a strategy that would allow his clients the best chance of enjoying real income for at least 30 years from retirement. This theory has held through several stock market booms and busts of varying magnitudes, says Summerton.
The key factors that influence the level of income you can draw in retirement are:
- Consistent saving over a long enough time horizon with a sensible asset allocation
- Your investment needs to keep up with inflation. If not retirement capital will be quickly eroded.
- Withdrawal rates need to be moderated and annually should not exceed 4% of capital.
- Levels of investment returns are largely driven by ones equity exposure but must be balanced with ones appetite for risk.
Click here to read full article by Michael Summerton.
We would be happy to review your portfolio to ensure that all of the above is in place. Please contact us on 021 001 2323.