Question:
I'm a retired 67-year-old who receives a pension from a bank. I recently sold a property for R600 000.

What would a relatively high income/low risk investment be? I need a monthly income as my wife will retire soon and has no pension.

Answer:
Your question is certainly very relevant at the moment as most of us are uneasy about investing after the rollercoaster ride the markets have taken us on over the last year. But despite this volatility, we need to be very clear about the investment strategy we are going to follow in retirement and then stick to it ? even when times are tough.

So how should we invest our money going into retirement? The most important factor is that we need to have a sound decision-making framework that takes the following into account:

1. Be clear about your point of departure and your destination. This means that you need to have a very clear idea about what you have to work with up front and what you need it to do for you.

2. Plot your route. Understand the various ways of getting to your destination (a comfortable retirement) and the role that your investments play. There are four key things that will determine your chances of achieving your desired retirement:

   • how much you save before you retire

   • how much you spend when you?re retired

   • the age you want to retire at (or start drawing from your investments)

   • the growth you?re going to get on your investments

3. Make sure you have the wheels to get there. The car that will take you to your retirement destination will depend on the four considerations above. You will note that only the last consideration is something your financial planner can manage for you. The other three are up to you. It also stresses a very important truth: The only way to successfully manage your financial life is as the driver, not a passenger. Your financial planner should be there to act as the navigator to help you back on track if you should lose your way.

The last step also focuses specifically on your question: How should I then invest my money? Once a financial planner has taken you through the process of identifying the returns you?re going to need, they should recommend a way in which you can achieve these desired returns. Because this is unique to your needs, I cannot give you a more specific answer around exactly what that might be. This decision ? if you?re anything like me ? will be driven by how well you want to eat (due to the investment?s growth) and sleep (due to the investment?s risk) in your retirement.

Before you make your decision, your financial planner should explain to you exactly what your chances of losing money will be and how that might change over time. Shares, for example, give us a negative return (judging by their performance for the hundred years from 1900 to 2000) roughly one out of every three years. As we saw last year this can sometimes hurt in a very bad year. Over five year periods, though, shares gave us a positive return 95 percent of the time and over ten years or more the return was positive every single time.

So does this mean that all our money should be in shares? No. But it does mean that we need to understand that a retirement investment will hopefully remain in place for 30 years or more and that we need to look at an investment that will most likely give us the return we need at a level of risk that is appropriate over that period. Your investment manager should then go about making sure that you get exposure to those asset classes (mainly consisting of shares, cash, bonds, property and international investments) that will give you the best possible chance of achieving the returns you need over time. Short-term investments based on the best incomes, yields or growth over the last year or two are virtually guaranteed to lead you to the wrong long-term decision.

I hope that the above gives you an idea of the kind of questions and considerations that should act as a framework for making your decision. As you can see, it requires the help of a financial planner who can help you ask the right questions and can help you to answer them. Please be very careful to choose an adviser that you believe does this in a way that makes sense to you. Getting this wrong up front could end up being the most expensive decision of your life.

acsis Limited is an authorised financial services provider. The response to the question covers some of the issues in a general and factual manner and does not constitute advice. It is important to consult with a financial planner who, after an analysis of the individuals? personal needs, goals and circumstances, will be able to provide comprehensive and appropriate advice.