Start planning early and properly for retirement, says SU professor

“It is never too early to start planning for the retirement,” said Prof Niel Krige of the Department of Business Management at Stellenbosch University (SU) in his augural address in the Jannasch Hall of SU’s Conservatoire on Tuesday (16 April).

Prof Arnold Schoonwinkel, Vice-rector: Teaching and Learning, Prof Niel Krige, and Prof Johann de Villiers, Dean of the Faculty of Economic and Management Sciences, at the inaugural lecture. (Photo: Anton Jordaan)

Prof Arnold Schoonwinkel, Vice-rector: Teaching and Learning, Prof Niel Krige, and Prof Johann de Villiers, Dean of the Faculty of Economic and Management Sciences, at the inaugural lecture. (Photo: Anton Jordaan)

According to Krige, people should as part of their planning try to work a little longer to shorten their retirement period.

“Postponing retirement to an older age has the threefold advantage of increasing the funds available for retirement due to investment performance, adding further contributions and shortening the period for which provision has to be made.”

Krige said it is vital that South Africans plan properly for retirement because some of them will live up to 30 years longer than the national average.

“If a person is planning to retire at age 60 and statistically he or she is likely to live to age 90, the chance of money death  ̶  the risk that a pensioner may run out of money during retirement ̶  becomes significant.”

“Money death is worse than physical death because it signals a loss of dignity and income,” Krige added.

He said people should consider their real age rather than their calendar age when planning for retirement because it is a better indication of how long a person may live after retirement.

Krige pointed out that an individual’s adjusted life expectancy based on his or her real age is determined by factors such as gender, income, HIV status, ethnic background, exercise, family illness history, stress, substance abuse and diet.

“Real-age adjusted life expectancy has significant financial implications for retirement planning. Retirees can make more informed financial investments based on their real age, thus increasing the probability of having sufficient funds during retirement.”

As regards retirement investment options, Krige said most people select living annuities because of the significant investment flexibility.

He added that although equities have significantly outperformed bonds and cash over longer periods, the downside of this is that one has to live with higher volatility.

Krige said retirees have to accept that there are very few scenarios where their financial survival probability is close to 100%.

“The most important precautionary measure available to living annuitants is to start with the lowest possible withdrawal rate at retirement (2.5% at present).”

“Retirees could also switch a part of the funds invested in the living annuity to a guaranteed fixed annuity at a later stage when interest rates are higher,” Krige said.

However, if this alternative is pursued the negative effects of inflation have to be considered, he added.