A simple instrument that can be used to manage finances on a rational basis after retirement
’n Eenvoudige instrument kan gebruik word om finansies na aftrede op `n rasionele basis te bestuur
With changes in the pension schemes of companies and longer life expectancy, it is becoming increasingly important for people still earning a salary and pensioners to take responsibility for their financial planning before and after retirement. Seven factors play a role in managing pension funds. The first is how much money is available to be invested. The second is how much money is required annually. The third is the yield of the investment. This is correlated with the fourth factor, the annual rate of inflation. The last three factors are current age, life expectancy and the time before the investment is exhausted. By combining factors e.g. determining real growth after inflation and percentage of investment used the situation can be simplified. By calculating how long funds could be withdrawn before the investment is exhausted, simple graphs could be
drawn up that can be used to answer a series of questions including: How much capital do I need to ensure a comfortable retirement? How long will my capital last under different scenarios? What should the real growth rate be to ensure that my capital lasts until I die? Although there are still many uncertainties, this instrument will help pensioners to make rational decisions on the management of their investments. It is also easy to make short term adjustments based on the recent real growth rate and the percentage of the capital withdrawn.