As you approach retirement, the third phase of your life after childhood and your working years, planning for financial security becomes crucial, especially to protect the wealth you built and maintain your lifestyle for the rest of your life.

John Kennedy, director and regional head for the Western Cape at Citadel, says strategic financial management in retirement is extremely important, especially considering that this phase can be divided into three distinct periods, each requiring different financial approaches.

A poll published on Citadel’s LinkedIn page reveals that 68% of the participants saw sustainable income streams as a priority, ahead of preserving wealth at 19%, leaving a legacy at 10% and philanthropic endeavours at 3%.

The same poll on X revealed similar results with 66.5% of participants prioritising a sustainable income stream, while 11% prioritised preserving wealth, 16.8% leaving a legacy and 5.8% selecting philanthropic endeavours.

Three phases of retirement

Kennedy says retirement can be segmented into three phases: the active phase, the passive phase and the supported phase, each with its own unique financial needs and challenges.

Active phase: In the early years of retirement, many people remain active, engaging in travel, hobbies and other leisure activities. This period is characterised by higher discretionary spending as retirees fulfil their bucket list dreams.

Passive phase: As retirees enter their seventies to eighties, their lifestyles often become more subdued. Travel and large-scale activities may decrease, your lifestyle may become more frugal and you may consider to ‘right-size’ your living arrangements.

Supported phase: The final phase involves increased health care and support needs. Expenses shift significantly towards medical care and assisted living.

Key risks in retirement

He points out that there are three key risks and making plans to mitigate them to maintain a good, steady standard of living is a good idea for people who are newly retired or approaching retirement.

Longevity risk: With people living longer, there is a real danger of you outliving your savings. Planning for at least 30 years post-retirement is essential. That means if you retire at 65, plan to live until you are 95.

Inflation risk: Inflation erodes purchasing power over time. What costs R100 today might cost significantly more in the future, affecting your standard of living. Therefore, it is wise to get professional advice on how to ride out inflation safely in the future through sensible and suitable investments that have a track record of delivering inflation beating growth.

Medical risk: Healthcare costs typically increase faster than general inflation, demanding a larger portion of your budget as you age. It is important to set aside funds for future medical needs, including enough to cover rising medical aid costs as you get older.

How to draw up a strategic plan for your retirement

Kennedy has these tips for consumers to navigate these phases and risks, as strategic planning is vital:

Choose a balanced investment approach: Your investment strategy should evolve with your age. In the early years, a high proportion of your investment strategy should consist of growth-oriented investments.

As you age, shifting a portion of your investments to shorter duration and more conservative asset classes should help to protect your assets from market volatility. However, Kennedy warns, do not be too risk averse with your investment strategy, otherwise your money may not keep growing at the rate required to sustain your needs.

To manage inflation and ensure long-term sustainability, maintain a portion of your portfolio in growth assets, like equities. These investments help counteract the effects of inflation but should be balanced with stable assets like bonds and cash to manage volatility.

Budget for each phase: Map out your expected expenses for each phase of retirement. Consider your current lifestyle and how it might change. For instance, budget for travel and leisure in the active phase and allocate more for medical expenses in the supported phase.

Do this simple savings calculation: If you plan to retire at 65 and want to maintain the lifestyle you have become accustomed to when you had an income of R100000 per month, you might need 200 to 250 times that amount in savings, totalling around R20 to R25 million to sustain your needs until the age of 95.

Minimise your debt: Enter retirement with as little to no debt as possible. Kennedy says it is advisable to have all your major expenses, including house and car, paid off by the time you retire.

Implement a withdrawal strategy: An essential aspect of retirement planning is determining a sustainable withdrawal rate from your savings. The ideal drawdown rate is about 4.5 to 5% annually, retirement and age dependent. This rate should be adjusted based on inflation and your specific, changing financial needs.

Ask a financial advisor for help

When planning for your long-term financial stability, there is real value in consulting with professional financial advisors, who can personalise strategies based on your unique circumstances, accurately calculate the quantum you need to live the life you want and ensure your retirement plan is robust, risk-managed and adaptable.

Kennedy says advisors can also help you consider additional goals, such as funding your grandchildren’s education or fulfilling your philanthropic dreams.

Lastly, he warns, beware of schemes that promise unrealistic returns. “Many retirees fall victim to scams and unscrupulous ‘product pedlars’, resulting in significant financial losses. A disciplined, well-thought-out plan is far more reliable than seeking quick fixes. Any investment scheme that seems too good to be true most likely is.”

Planning for financial security in retirement involves discipline, understanding the different phases, managing key risks and keeping the overall strategy simple and understandable, all of which can help you create a plan that can help ensure a comfortable, secure and fulfilling retirement, he says.

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