Most commentators agree that South Africa is facing a retirement crisis, with only an estimated 6% of South Africans in a position to retire in financial security…

However, says Alex Cook, CEO of GCI Wealth, it is possible to buck the trend and actually retire early with a secure and adequate income.

“The reason so many South Africans cannot afford to retire securely is that they don’t have a plan,” he says. “It’s essential to create a retirement plan with the help of a good financial planner, and then stick to it. If you do so, it is perfectly possible to retire early, say at age 55, with the financial security that allows you to live a fulfilled life.”

Over the years, Cook has gained an in-depth understanding of the steps that individuals need to take in order to take control of the whole process.

1.     Develop a budget

Cook says that the essential first step is to understand exactly what your current monthly expenses are, and then to use this to develop a budget for what your retirement monthly expenses would look like. “The income you wish to have at retirement directly affects the amount of capital you will need to fund it, and thus how much you will need to save,” he explains.

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2.     Understand your risk profile

To accumulate enough capital for a financially secure retirement will mean that your investments will need to work hard. During the early stages of the cycle, in particular, he says it is very important for people to focus on investments with the potential for high growth. “High-growth investments can be volatile over the short to medium term, but in the long term only they can deliver the kind of growth needed,” he says. “Adopting a conservative approach is fatal.”

3.     Start early and increase your savings by at least 12% per annum

The longer you are in the market, the greater the rewards will be thanks to the power of compounding, which Warren Buffett says is the secret to long-term investing success.

Copyright: zerbor / 123RF Stock Photo

4.     Put a plan in place, and keep the faith

Budgeting and the rest of it must be part of a long-term plan, says Cook. He stresses that it is important to stay engaged with the plan in order to ensure it remains fit for purpose—but it’s equally important to stick to it. Investors who allow short-term market volatility to prompt changes in their strategy simply “capitalise” any losses, and will not benefit when the market corrects itself. He adds that the plan should include ensuring that you are free of debt at retirement.

How your choices affect your retirement:

Three scenarios illustrate these points. Each scenario is based on the goal of retirement at age 55 with R55 million in capital (at future value) in order to generate the desired retirement income of R30 000 per month (today’s values).

All the scenarios assume a starting age of 25 and an initial monthly contribution of R4 000.

Scenario 1

In Scenario 1, contributions are increased by 15% a year and high-risk, high-growth investments are targeted. This strategy will result in enough capital to retire at the age of 55 at the desired income, and comfortably able to fund an inflation-linked increased until death. It will also leave the capital intact for heirs.

Scenario 2

In Scenario 2, the only thing that changes is that a conservative investment strategy is followed. Here, there is an income shortfall that means that the capital is exhausted at the age of 74.

Scenario 3

In Scenario 3, the investment contributions are restricted to a 6% increase per annum. Even though a high-risk investment strategy is followed, the result is equally disastrous, with the capital exhausted at the age of 66.

GCI employs a sophisticated tool, Wealthbit, to help clients and non-clients generate their own scenarios and so take control of their retirement planning and saving.

“Start early, prioritise growth and steadily increase your monthly contributions and you will be able to achieve your goal of early retirement,” Cook concludes. “Yes, it will take discipline but then so does everything worthwhile in life.”