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We’ve drawn on a recent Allan Gray article to provide insights that can help improve your retirement lifestyle and offer clarity and some peace of mind as you approach retirement.

1. Plan for a longer retirement

With increasing life expectancies due to advancements in medicine and healthcare, research indicates that to have a 90% probability of not outliving your retirement, you should plan for 40 years of retirement at age 55, and for an additional 10 to 15 years at age 85.

2. Ensure you save enough

The “rule of thumb” is one needs to build retirement savings to a level that will be able to generate 70% of your income in retirement. Consider that the nature of your expenses is likely to change as you age; consequently, requiring less income.

3. Invest to achieve above-inflation returns

Inflation is the silent killer of income, and it will erode your lifestyle significantly over the long term if not strictly managed. The only way to achieve above-inflation returns is to include some growth assets in your retirement savings portfolio.

As example, a retiree who draws 4% of their capital and wants to increase the income with inflation over a 30-year period would require an average real return of 2.1% per annum, as shown in the table below:

Minimum real returns required per year to sustain a required level of real income for a period

4. Ensure that you have the appropriate amount of growth assets in your portfolio

Over the long term, equities (growth assets) have provided a real (above inflation) return of 7%. Therefore, to achieve a real return of 2% or 4% above inflation, you would require 30% or 60% respectively of growth assets in your investment portfolio.

5. Draw a reasonable level of income

Assuming 30 years of retirement, a drawdown of 4 to 4.5% and lower should give you a 90% probability of your income lasting, assuming an appropriate amount of growth assets are consistently included in your retirement portfolio.

6. Be disciplined in saving

Resist the urge to splurge when times are good, use windfalls wisely. As your income rises increase your saving rate, have a financial plan that balances present needs and future wants, and invest in inflation-beating funds.

7. Build a financial plan

A comprehensive financial plan will give you clarity and inform you what kind of lifestyle is possible in retirement. It will also assist in saving – most tax efficiently – and providing the desired income needed in retirement for your lifestyle. At Investonline, we will assist you in building a personalised financial plan free of charge.