A qualified financial planner will be able to assist you with a comprehensive retirement plan, considering your total financial circumstances. Picture: 123RF/RIDO
A qualified financial planner will be able to assist you with a comprehensive retirement plan, considering your total financial circumstances. Picture: 123RF/RIDO

Q: I am close to retirement and, though conservatively invested, the panic-selling over Covid-19 since the start of March has taken off a 10th from my retirement annuity. Though markets are showing signs of recovery, how worried should I be that my retirement savings will be depleted even more? And what should I do to limit the losses? — Anonymous via e-mail

A: Johann Steyn, Certified Financial Planner®️ at Sanlam and principal of Rainmaker BlueStar Financial Advisory Services, responds:

In most instances the best thing to do is nothing. Financial markets always recover over time and this time it will be no different. If your investment reduced by 10% it is almost certainly not a conservative investment, but in all probability a balanced portfolio at moderate risk profile and asset allocation.

A rational approach in reviewing your investment and financial portfolio should take place at all times. External circumstances such as the outbreak of Covid-19 cannot be predicted, and many similar events will occur over your lifetime. These events will undoubtedly affect your financial portfolio, but losses can be avoided if you do not act hastily.

Your investment portfolio should be diversified across all big asset classes to provide the best possible outcome over your lifetime.

In general, the answer to your question lies in what you want to do with your retirement annuity at retirement date. You have the option to withdraw a third in cash and must invest the remaining two-thirds in a compulsory annuity product. The compulsory product may be a guaranteed life annuity, an investment-linked life annuity (living annuity) or a combination of both. The ideal solution will depend on your total income requirement from this investment as well as other financial resources you have available.

If you plan to purchase a guaranteed annuity at retirement, the value of your retirement annuity on that date will determine the income you will get as a guaranteed pension. If you select a living annuity at retirement, the value on the day is not as important as per the guaranteed product. The reason is that the living annuity may be invested in the same risk category and asset allocation of your current retirement annuity and therefore you may recover the “paper losses” after retirement.

The level of income you choose to withdraw from your living annuity will have a huge impact on the effect a market recovery will have on your investment, because you can only recover from “losses” on capital that is still within your investment and not drawn out as income.

I recommend that you seek professional financial advice from a qualified financial planner who will be able to assist you with a comprehensive retirement plan, considering your total financial circumstances and not purely focusing on your retirement annuity in isolation.

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