For as long as I can remember, it was my intention to retire at 55. This was a common trend among my friends and family and, even today when consulting with younger people, this trend still exists.

My ambitions have since changed. I now want to work for as long as possible and again, this seems to be the trend among the older people I consult with today. Why this change?

For one, I think most young people have ambitions to work for themselves, build tremendous wealth and live the life of luxury and leisure at an ambitious young age. Although this is possible, not many achieve this feat. As young people, we also believe that we can do things better than the establishment and often “bosses” are not held in high esteem by younger employees. This leads to unhappiness in the workplace and dreams of early retirement start to form. Nothing wrong with that as long as your financial plan starts early, and you accumulate sufficient wealth. Unfortunately, not many people achieve either.

As we grow older, reality steps in and the realisation that we started accumulating wealth for retirement too late or too little starts a shift in mindset. Our retirement target moves from 55 to 60 to 65 and even beyond 70. Older people also have a more pragmatic approach towards work, and they are more content with corporate bureaucracy. Many older people (like me) actually enjoy their work and want to carry on doing it for as long as possible. This is great for retirement planning, but what if you still want to retire at a younger age?

Let us consider a few well-known facts that must be considered when retiring:

• The more you need to earn in retirement, the larger your investment amount must be.

• The younger you are when you retire, the longer your capital must last, the larger the capital amount that funds your retirement must be or the higher the returns that you receive must be. This implies that you have to take on more “risk” (growth assets) the younger you want to retire.

• The more you want to leave for loved ones when you pass on, the more funds you need to start with or the higher the returns that you achieve need to be.

• The volatility of investments becomes much more important during retirement (sequence of returns). Limiting volatility should be a priority.

• Obtaining inflation-beating returns is crucial during retirement as it is during all phases of investment.

• Drawing excessive income levels from investments will deplete capital.

There is a relation between the returns required versus the income drawn and the term that income is required. For example, you need approximately 12% return net of fees per annum to draw 5.5% income which escalates at 7% per year for a 55-year-old planning to receive income to age 90. For a 70-year-old, a return of approximately 9% per year is required to achieve the same goal.

One of the strategies to reduce volatility and ensure a more sustainable income through retirement is to purchase a guaranteed life annuity with all or a portion of your retirement funding.

This strategy makes much more sense for older retirees than younger ones since annuity rates can vary as much as 6% across various age and sex bands. A 70+-year-old retiree will in all likelihood be able to source a life annuity that will be able to provide sufficient income for the rest of their life while a 55-year-old will probably not be able to follow this route unless their income requirement is below 4%. On the flip side, if you wish to leave capital to loved ones then life annuities offer their own challenges since the annuity dies with the annuitant. Life assurance (which costs money) will have to take care of any inheritance.

Guaranteed life annuity rates are determined by age, sex, interest rates, bond rates and the percentage that various insurers are prepared to “bump up” the annuity rate via their balance sheets, their claims experience and the make-up of their annuitant risk pool. For that reason, annuity rates change weekly and different annuity providers top the charts at different times.

With bond markets anticipating interest rate and inflation movements, a higher interest rate does not necessarily mean a higher annuity rate at a given time.

At this point, I can hear the choirs sing the praises of SA Retail Bonds. They offer fantastic yields, for now… Their main challenge is that there is no escalation in income and that after five years you receive your original capital back effectively reducing your purchasing power by the rate of inflation over five years. For short-term income and nominal capital protection over five years, however, they are great. Bear in mind that it is unlikely that in five years yield will be repeated at the current levels. They will very likely be lower.

Delving through the above and finding a solution that will meet your needs within an acceptable comfort level and at the same time be sustainable, is an emotional challenge.

When it comes to investments and money in general, there are two sides to money.

The technical side is the number crunching and calculation side. Portfolio structuring is important and investment strategies with technical analysis dominate this space.

The dominant side of “money” is the personal or emotional side. Research has shown that approximately 80% of financial decisions are driven by emotions. Consider the following facts:

• Investors are more concerned about “losing” money than “making” money.

• The effect of portfolio shrinkage has a much more profound negative effect on investors than the gain attraction of portfolio growth.

• The average investor sells low and buys high driven by emotions and market hype.

• The average investor underperforms the funds they invest in by around 2% per year due to irrational behaviour resulting in trying to “time the market”. This research was conducted by major players researching the same investors investing in and disinvesting from the same funds over different market cycles.

• Most investors perceive volatility as losses.

• Most investors do not want to incur volatility during retirement. Considering that retirement generally represents an investment term of longer than 30 years (age 65 to 95 for planning purposes). This means that volatility is not just a probability but an absolute necessity to achieve inflation-beating returns. With volatility comes investment opportunities created by disconnects (due to irrational investor behaviour).

• The prevailing emotional state of mind of an investor at any given point in time will drive their investment decision. This can be influenced by many factors including health, family concerns, divorce, death, relationships, and the list goes on.

The above factors need to be taken into consideration when you embark on your investment planning and retirement planning journey. Understand the additional challenges should you want to retire younger rather than older. Also bear in mind, the younger you retire, the more important it becomes to ensure that you have something meaningful to keep you busy with once you retire. Do not fall into the trap of waking up in the morning without purpose…

Consult with a professional financial planner who will not only assist you with implementing a suitable investment and retirement strategy but someone who can assist you with that life transition into retirement and beyond. A professional person is likely to identify your “blind spots” that may just prevent some critical errors in judgement.

Retirement should be a period of contentment, not one of stressful concerns irrespective of at what age you retire.

Happy investing and happy retirement.