Ina Opperman

By Ina Opperman

Business Journalist


How to navigate retirement in a stormy economic climate

With soaring inflation, turbulent markets and high interest rates, a renewed focus on your retirement savings is a good idea.


If you know how to navigate retirement in a tough economic climate, you can fortify your golden years despite the mounting global pressures that can make retirement planning seem daunting.

Despite this economic volatility, it is critical to remember that retirement planning is a long-term endeavour and economic downturns are to be expected.

Therefore, you must never allow short-term economic conditions to provoke reactive decisions like prematurely cashing out of your retirement plans or selling your growth assets, as periods of downturn are naturally followed by those of growth, says Nosipho Nhleko, investment product specialist at Liberty.

“The tenets of sound retirement planning remain consistent: appropriate diversification, risk management and planning for the long term. You can set up your retirement plan correctly upfront by benefitting from high interest rates, using the power of compound interest to beat inflation and managing the uncertainty of market downturns.”

Benefitting from high interest rates

People at retirement stage can use a high-interest rate environment to their advantage by purchasing a life annuity. Higher interest rates correspond to higher annuity rates, potentially resulting in a higher monthly income during retirement. Therefore, investing in life annuities under these conditions could yield favourable returns, solidifying a guaranteed income for life, Nhleko says.

“You should also work towards reducing your debt as much as possible before you retire. The last thing any retiree wants is an escalating mortgage payment due to rising interest rates. Therefore, debt-free retirement should be a priority, transforming the high-interest-rate scenario from a burden into an advantage.”

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Using the power of compounding to beat inflation

The growing spectre of inflation underscores the importance of investing early and focusing on high-growth assets. The difference between investing at 45 instead of 35 could mean losing out on millions of rands from accumulated savings and capital growth and can make a significant difference to the quality of life you could experience in your golden years, Nhleko says.

“When you are ready to retire, purchasing a life annuity with inflation escalation allows you to benefit from an income that is not only guaranteed for life, but also keeps up with inflation.”

Managing the uncertainty of market downturns

There are a number of ways to manage the uncertainty and anxiety that accompanies market downturns. “Your asset allocation is extremely important and is the primary driver of your portfolio return. With a distant retirement horizon, a greater proportion of your investments should be assigned to high-growth assets such as equities.

“Conversely, nearing retirement should prompt a gradual transition into lower-risk assets like bonds and cash. This strategy, known as ‘life-staging’ and is designed to shield portfolios from severe downturns as retirement approaches.”

Nhleko says including global diversification in your portfolio can also help you manage market downturns. “A global approach to asset allocation can provide exposure to potential high-growth markets worldwide.”

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How to hedge against market downturns

Financial service providers offer some mechanisms to hedge against market downturns. For example, the High-Water Mark Guarantee, an optional feature available on the Liberty Living Annuity that protects up to 80% of a portfolio’s best investment performance as measured at the end of each quarter over a five-year period effectively sets a limit on how low a portfolio can drop, Nhleko says.

In essence, retirement planning is a delicate balancing act. “A comprehensive retirement plan, supported by regular consultations with financial experts, can provide the guidance and security needed to weather economic volatility and ensure financial security in retirement.”

According to Nhleko, this is especially significant when considering that, according to the FSCA, more than 90% of South African retirees are unable to maintain their standard of living prior to retirement and two thirds of members have less than R50 000 in their retirement funds.

“In the face of a complex and ever-changing economic environment, one fundamental truth remains: the path to successful retirement does not lie in evasion, but in navigation. It is not about avoiding the stormy economic headwinds, but about understanding its patterns, capitalising on its quirks and leveraging off the right financial instruments and expert guidance to chart a steady course.

“This, more than anything else, is the key to ensuring that the golden years are indeed golden, regardless of what the market tides may bring.”

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