You don’t choose your birthday, but it could cost you in retirement

BUSINESS NEWS - Two savers contributed R10 000 a month, increasing by 4.5% a year, towards retirement from April 2007 and made no early withdrawals. In both cases, their respective funds targeted returns of at least CPI plus 5% a year, a standard benchmark for retirement planning.

But in March 2020, one saver had 27% more money than the other: R3.95 million versus R3.11 million.

Both retired that month, based on their ages and mandatory retirement dates - just as markets crashed because of the Covid-19 pandemic.

Retirement incomes

Yet their retirement incomes diverged dramatically.

In the first example, assuming the same annuity rates, one retiree earned R10 000 a month from a life annuity, while the other received R7 300.

"Someone is materially impacted; they are taking a nearly 30% haircut on their standard of living,” said Marvin Nair, investment solutions executive at Old Mutual Corporate. He was speaking at the recent Institute of Retirement Funds Africa (Irfa) conference.

These examples are based on:

Old Mutual’s Absolute Growth Portfolios (AGP) Smooth flagship product, which was launched in April 2007; compared with The Alexforbes Global Large Manager Watch Survey ‘Best Investment View’ median fund return.

While saving for retirement would be longer than 13 years, Nair intentionally used that time horizon since it coincides with actual data he had based on the Old Mutual AGP Smooth product 2007 launch.

In addition, retirement dates are largely determined by when people are born – and as Nair said: “None of us picked our birthdays.”

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