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When it comes to your retirement planning, being too cautious could land you up with an uncomfortable retirement after years of hard work. Denis Viljoen, Business Development Manager at Glacier by Sanlam, explains: “Everyone deserves to retire with dignity. Unfortunately, if your money is invested too conservatively, you might wake up one day to the reality that your savings are not going to afford you that dignity.”

Why a conservative approach to retirement isn’t reliable

When you’re in an ‘up’ market, you want to enjoy a piece of the pie (i.e. investment returns). A conservative approach to investing doesn’t offer this. “If minimal risks are taken when investing because your focus is on generating constant cash flow, the underlying portfolio will tend to underperform during rising markets,” says Viljoen.

Besides returns, a conservative approach doesn’t necessarily account for inflation, which means your investment won’t meet or beat it. “Equity exposure is vital for income to keep up with inflation,” Viljoen continues.

True safety in diversity

Diversifying your asset allocation is necessary to mitigate market risks and secure your capital in the long term. “In a diverse portfolio, assets are less correlated; when one rises, the other one’s value may fall, and vice versa,” explains Viljoen. “It’s your best defence in a financial crisis.” To achieve this, look at including more growth assets that are uncorrelated in your portfolio to decrease volatility. “Look at diversifying between offshore equities, local bonds and local equities,” Viljoen suggests.

“Diversifying your asset allocation is necessary to mitigate market risks and secure your capital in the long term,” says Denis Viljoen, Business Development Manager at Glacier by Sanlam.

How to achieve diversification through a combined approach

On average, retirees take more income from their retirement capital than what guidelines recommend, shares Viljoen. This leads to a greater risk of running out of capital, and in instances where leaving a legacy to beneficiaries is a goal, the opposite happens – with beneficiaries often having to take care of their retired loved ones instead.

Combining a life annuity and a living annuity harnesses the benefits of both solutions for an optimal income that takes care of fixed costs and ad hoc expenses, allowing you the freedom to live your life fully, with peace of mind, says Viljoen. “The advantages of using both of these solutions are that you’re guaranteed an income for life, you can benefit from possible income growth in the future since your investments have market exposure, and when you pass away, the remaining capital in your living annuity can be passed on to your dependants,” explains Viljoen. You also have the flexibility to adjust your income percentage if markets take a dip.

The right solution for you

A financial adviser is key to helping you realise your retirement income goals. By reviewing your assets and liabilities to determine your total wealth, they can partner with you to answer questions you have about your retirement, and suggest the right income solutions depending on your financial standing, risk appetite, and more. “There is no place for a single product anymore. A financial adviser has to consider all offerings in combination to meet your personal needs,” says Viljoen.

Partnering with a financial adviser allows you to have confidence, knowing that you are moving in the right direction to realise your retirement goals, but are also in trusted hands to receive ongoing advice as and when your retirement goals change.

View Glacier Insights, our information hub, for more retirement-related reading and tips.

Glacier Financial Solutions (Pty) Ltd and Sanlam Life Insurance Ltd are licensed financial services providers.

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Sanlam Life Insurance is a licensed financial service provider.
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