I woke up one morning recently, April 1 to be exact, to find that my life’s calendar had gently tipped over into that big number that all us Baby Boomers fear: 65.
There was no rush of blood, no feeling of excitement or despair. In many ways it was just another day. I woke in a strange bed, that of the Lowlands Country House and Manor, somewhere in the middle of the beautiful Karoo, roughly halfway between Steynsburg and Cradock.
It was the third day of a five-day cycling tour through the Karoo (www.gkcycle.co.za) and was my personal “retirement” gift to myself and family. Far better than yet another boring old lunch with a group of grey and greying people, whether family or friends. That would come later.
This was a gift of a different kind to myself: to be doing something exciting with the people near and dear to me: wife, children, daughter-in-law and step-daughter. I recommend it to anyone as a sort of passing out gift. We cycled well (over 220 kilometres in total) and saw some parts of the hidden Karoo which very few South Africans see. Do it: you owe it to yourself and the Karoo. And if you haven’t been on a bike for 20 years or more, fear not, the world of electric bikes has also reached the Karoo.
It also got me thinking about retirement. Or the fact that the traditional retire-at-65-and-live-happily-ever–after as a lifestyle simply does not exist for me. And I intend on keeping that way for as long as I can…..
And the truth of the matter is that it exists for less and less people in South Africa today.
I look around me, at friends, family and even clients, and I battle to find someone who has retired in the traditional manner — namely retire and draw down on your capital until you die. After all, wasn’t that the dream sold to you 20, 30 or even 40 years ago? For the rapidly dwindling number of retirees who managed to remain on defined benefit funds, this still might be an option, but the chances of their incomes keeping up with inflation is also dwindling.
Who moved the finishing line?
Wasn’t 65 (or 60, or 55 or whatever age) the finishing line? That’s when life suddenly turns into this blissful age of carefree living and travelling, depicted in so many grotesque ways by these nauseating images of this perfectly preserved older couple with perfect teeth, hair and skin. I so hate those images that are still dreamed up by 25-year old marketing yuppies who have had no experience in life.
I think all advertising related to retirement should be drawn up by people already retired. All financial planning should be done by people aged 65 and older, who have seen it all. I too find myself in that category. More than 25 years ago I sat down and penned a little book on retirement, called How To Plan for a Happy Retirement. I cringe today when I read what I wrote so many years ago…
However, the book The Amazing and Scary Truth About Retirement (2002), which I penned with Bruce Cameron, was a bit more realistic and reflected a more experienced approach to the curved balls that life throws our way. In the book we warned as follows:
“Your retirement is not what you think it is going to be. Therefore, throw out any preconceived notions that you may have about how you will retire. A radical new paradigm is developing that will change how you invest and dream for the future.”
See what a little bit of real-life of experience can do to blind idealism?
The book tried to warn people planning their retirement about the drastic changes heading their way, not least the dramatic increases in longevity, economic uncertainty and lower investment returns. We furthermore warned that “putting money away for retirement is a postponement of gratification”. But, even at that time it was clear that the average South African was not saving enough, rather spending money hard and fast on conspicuous consumption.Today, a mere 15 years or so later, we are seeing, first-hand the implosion of retirement dreams all across the country. The collapse in residential property prices and the lacklustre growth in the SA stock market has just added to this problem. For many, retirement is going to be a cold and lonely place.
My inbox is often filled with these hard-luck stories. “I have X-amount to invest but I need to draw about 15% of the capital annually to pay all my expenses.” Most financial advisors have similar stories. And the expenses? These include the boat at the Vaal, the beach house in Plett/Sedgefield, maintenance to the ex-wife, children still at school etc. We all carry battle-scars. And this can go on for another 20 to 30 years until the money runs out at some stage, which it will.
Some rules about retirement planning
Here are some universal truths for everyone planning for or approaching retirement:
All retirement planning projections are bound to be wrong. In a perfectly predictable world, they might have some value, but we don’t live in a perfect world, especially not in SA. Stock markets can crash (1987, 1998, 2008), companies go bust (Steinhoff etc.) and global macro events often make a mockery of long-term forecasts. Think about those poor investors who put all their trust in gold and precious metals all those years ago. Gold shares have lost 70% to 80% of their value over the past 20 years. Or imagine having a couple of farms today as your retirement plan.
Ten years or so ago I came across many investors, for instance, who created these (perfect) retirement portfolios on a spreadsheet, based on buy-to-let properties with rising incomes and capital values without any bad debts, a collapse in the property market or errant tenants not paying their rent. Today this a very real nightmare for thousands of amateur property landlords. Property prices on average are down by about 22% in real terms over this period of time. In many parts of the country, property has lost all its value.
Even stock market projections can be dangerous. Take the last three years for instance. Most pension funds or stock market portfolios have not beaten the average inflation rate of 5.4% over the same time. Go and check yours if you don’t believe me. And it doesn’t look like turning around very soon. I previously wrote about the destruction former pres. Jacob Zuma has wrought on the private wealth of SA’s citizens.
They often don’t make allowance for the unforeseen. Life comes with things such as death, divorce, bankruptcy, betrayal or bad health, often blindsiding your meticulous preparation. You cannot plan for these things, yet more often than not we all have to deal with them. Who teaches you those skills?
My advice is to plan for a very long and often active life after retirement. The unofficial retirement age for those who can afford it or is able to arrange their affairs in such a manner, is now well into the 70s and soon, like the Japanese, will be in the 80s.
Your health is almost as important as your wealth. A recent study by Swiss bank UBS reveals that high-net-worth individuals (assets of more than $1 million) will gladly give up to a third of their wealth to live a longer and healthier lifestyle. There is also a very strong correlation between longevity and wealth: the wealthier you are the longer you tend to live, by almost 10 years when compared to less wealthy people. Money buys you better medical treatment, better nutrition and more time to exercise.
Also, plan your post-retirement career. I often come across retirees who immediately embark on a post retirement career, either consulting, assisting spouses or children in their businesses or even starting their own small business. I had lunch the other day with investment guru Mark Mobius, formerly with Franklin Templeton, who on his retirement at the age of 81 earlier this year immediately started a new global fund management company. Warren Buffet manages money at the age of 86 while his partner Charlie Munger is 93 — both of them still mentally very sharp and able.
The best advice I can give people approaching retirement is to simplify their lives. Scale down in almost all respects. Sell that second or third car, likewise the property at the coast (which must be the worst investment for most, in any case), scale down from the mansion to a small cluster and give all your accumulated rubbish away. You are never going to use/repair that old fridge, microwave, couch or broken lawnmower gathering dust in the garage. Oh, how we accumulate rubbish in our lives! But keep your old wine, whisky and all those books that you have been planning to read … “one day when you are retired”.
Consolidate all your investments into a coherent portfolio, one that you understand and can sustain you for the rest of your life. Your investment strategy in retirement should (in theory) be simple for most people. How much capital do you have? How long will I live? And what income do I require? Will it be enough? If it’s not — spend less.
Finally — externalse a great deal of your assets. I know I have been saying this for a long time but it bears repeating. SA is not creating much wealth as a country. Invest for yield in SA but look for long-term capital growth elsewhere. The past ten years in the property market and the past seven years in equity has shown this to be the correct investment strategy. I don’t see this changing. I somehow remain suspicious and cynical about Ramaphoria, and so seems the rest of the markets.
And don’t forget that cycling trip in the Karoo…..
*Magnus Heystek is the investment strategist at Brenthurst Wealth. he can be reached for ideas and suggestions at firstname.lastname@example.org