You don’t choose your birthday, but it could cost you in retirement
And how two savers retiring during the same market crash ended up with sharply different incomes.
Two individuals who began saving for retirement with a monthly contribution of R10,000, increasing at a rate of 4.5% per year, experienced vastly different retirement incomes following the 2020 Covid-19 market crash. One retiree amassed R3.95 million, while the other accumulated R3.11 million. Despite both retiring simultaneously, the retiree with the larger sum received R10,000 per month from a life annuity, while the other received only R7,300.
Old Mutual Corporate's Marvin Nair explained that this disparity represents a significant reduction in living standards – nearly 30%. The difference in outcomes was not due to varying investment strategies but rather the timing of their retirements during a market downturn. This phenomenon, known as sequence-of-returns risk, refers to the impact of the order of investment returns on retirement income.
Other studies, like The Alexforbes Global Large Manager Watch Survey 'Best Investment View' median fund return, have shown similar results. Nair emphasized that while risk-managed solutions can reduce the impact of market downturns, they also may not offer the same growth potential as traditional investments. Younger savers may find these solutions less appealing, as they provide no protection against market crashes.
Written by urgent.news from The Citizen's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
