Regular readers of these columns will have come across the analogy I’ve used regarding cows and milk once you’re reached the retirement phase of your life.

Retirees are urged to move the focus away from the capital value of your accumulated pension and concentrate rather on the ability of your portfolio to generate a consistent production of income.

Ideally you should be in a situation where the units you have purchased in your living annuity (the cows) should produce more income (milk) than needed, which can then be sold/used to acquire more income producers.

The world we live in is becoming increasingly volatile for investors/retirees and along with that comes the anxiety of seeing the capital value of your retirement provision rising and falling when world events impact on markets. Recently events such as the Russian invasion of the Ukraine and the escalating conflict in Israel have impacted significantly on living annuity values. If your income exceeds the portfolio’s ability to produce your monthly needs, units will have to be sold and the value of your units becomes relevant. Bear in mind that selling units increases the percentage drawdown that you will have take to keep your income level the same. You’d be well aware that you are only able alter the Rand amount of percentage drawdown once a year and that amount or percentage is based on the capital value on the anniversary of your retirement portfolio.

All too often we have clients needing to increase their monthly income drawdown but who are also concerned about eating into the capital as they want to leave a legacy to their children. At the risk of sounding harsh, your children need to concern themselves with their own retirement capital as yours is meant to ensure that you don’t become a burden to them once they reach the age where they are considering retirement. It is fast becoming the norm and not the exception that clients in their retirement years are needing to fund their own parents’ income needs. As mortality dates push further and further out capital depletes faster and faster, there are fewer places where people are able to cut their coats according to the cloth and not sacrifice the bare necessities.

To the retirees who view their living annuities as a legacy for their children, I ask the question of how much they inherited from their parents’ pension funds. The world they grew up in was one where a person tended to retire from the same company where they began working straight after school and the company pension saw to their and their spouse’s needs until death, whereupon any balance that had been accumulated was used to fund retirees who lived longer than them and who were still members of that fund. Companies saw this problem as insurmountable and thus incentivized members to move from the defined benefit they would receive to the defined contribution the employees would need to safeguard upon retirement, the problem of longevity now no longer a noose around the company’s neck.

So where does this leave us in terms of planning wisely? As hard and inconceivable as it may sound, you have to be selfish and discerning when it comes to your monthly pay check in your capital accumulation years. Over and above your pension contribution, you HAVE to squirrel away a nest egg (excuse the mixed metaphor) to meet those over and above expenses that will crop up during the so-called golden years.

On average your income will drop by SEVENTY percent so that slush fund will be really important.

Pay yourself first on a monthly basis to ensure you have this cash available so that you will not longingly look at the anniversary date for when you can increase the income from your living annuity.

Always bear in mind that you may very well live as long  after retirement than you spent working towards that time where you can kick up your heels or stop to smell the roses. Think about how much you will need for expenses AFTER TAX and do all you can to save that amount of money during your economically active years.

Lastly, it may well be that you have to put your pride in your pocket and accept that a life annuity where you and your spouse receive a fixed pension (like your parents did),  escalating at a rate close to inflation is preferable to a living annuity that you may (possibly) leave as a legacy to your beneficiaries when your time on Earth is done.