Retirement: The race between death and bankruptcy

For a lot of people this can be a reality! What can you do to avoid it? Well, at least know your enemy, INFLATION and CASH investments.

Ponder this:
A car costing R10 000 in 1999 costs R150 000 today and will cost R360 000 in 2030. At a rate of 6% inflation the cost of something today will double in 12 years.

Now if you want to fight inflation with cash investments, you are bringing a knife to a gunfight. Consider the following:
You are retired and earn 5.5% interest on your cash investment of R10 000. You spend R10000 per year on groceries and the inflation rate is 6%. After one year you withdraw your investment in cash which is worth R10 550 (10 000 + 5.5%) and hurry to the Mall to buy your annual groceries. You buy exactly what you buy every year and at the till the cashier tells you that you have to pay R10 600 (10 000 + 6% inflation). You are R50 short!

So what do you do? You eat less or cheaper food! You have to put something back because the bank will not lend you money and nobody else gives a dam. Just imagine the effect if inflation is 8% and SARS deduct some tax on your interest earned!

What can you do?
Your only friend in this fight is inflation beating returns. Your investments have to generate more than inflation eats away. Your best weapons are assets like equities and listed property and the power of compounding (earning returns on returns).

Once you retire and stop generating an income, it is very difficult to take the risk of investing large amounts of your savings in risky equity investments. The catch is that you have to take that risk because cash returns will not beat inflation and you might run out of money before you die!

The best solution is to START SAVING EARLY into quality shares where even if the shares fall for a couple of years, you can just wait for it to bounce back and provide you with a return over TIME which will beat inflation like it has been doing for the past 100 years!

You have to take the calculated risk of investing in a diverse number of quality shares while you work via Unit Trusts, Retirement Annuities or any other means, to help you build up a reserve for those later years when you have to put most of your money into cash.

If you are still in your income producing years (between 20 and 70), you have to invest in shares and other inflation beating investments. Between 20 and 50, go 100% SHARES etc and forget about it! Let your Fund Manager handle it.

You eat an Elephant one mouth full at a time, living costs after retirement (voluntary or forced), is one Mother of an Elephant. Start eating now.

And to really drive it home, consider earning 30% less on your Pension or Salary like the Greeks! If you lived on credit and cash reserves, depending on future Salary increases or a nice Pension, stop dreaming!

If you are going to be responsible and save some money every month, at least give your investments a chance and choose equities and not cash.