By Malcolm Stewart-Portfolio Manager at QSAM Financial Services (Pty) Ltd.

It is vitally important that investors have a long-term plan or strategy for their retirement years.
The first step is to properly establish your "Personal Profile". This self- assessment is specifically designed to gauge your personal profile:

1) Are you married in or out of community of property? - this has important tax implications.
2) Your age and your spouse's age? - obviously the strategy for a 65-year-old pensioner is very different to that of an 80 year old.
3) The number and geographic location of your children or grandchildren?.
4) Your state of health? - the costs of medical treatment are escalating at over 20% p.a.
5) How old is your car? Will it need to be replaced one day?
6) The value of your house? - one always needs a home to live in, so a house is not really an investment asset. However it plays two investment roles. Firstly it is your asset of last resort i.e. if you are desperate then it obviously can provide further funds.
7) Your debt? - pensioners should have no debt whatsoever.
8) The nature of your pension? Does it escalate? Does it pass on to the surviving spouse? Is it linked to an investment product that must be managed or does it have a limited life?
9) Your budget - a honest budget needs to be compiled and should include all monthly expenses and all annual expenses.
10) Your investment tolerance? Have you had any bad investment experiences in the past?

These are the ten main points, which have to be considered when drawing up the first step of your
"Pensioners Plan". The next step is to establish your "Asset Profile" which is done as follows:
1) Your home should only be included if it is soon to be sold or is too large for your current needs.
2) Insurance based assets. These include all endowments, retirement annuities, guaranteed plans, living annuities or traditional annuities. Offshore insurance-based products should also be included. The details of these products must be clearly laid out. e.g. maturity dates, estimated values (both current and anticipated maturity values. One should always use the lowest maturity values. Assess the revenue being generated by these assets, (not the return), and whether it is taxable or not. One should ascertain what underlying portfolios these assets are linked to, their performance and whether they can be changed if necessary. 3) Unit trust holdings. These may be held in linked product companies like Galaxy or IMS and can often be managed. They may also be held directly. The income generated by these holdings should also be noted. 4) Equities i.e. shares held by a stockbroker, or your Old Mutual or Sanlam shares which are held directly. 5) Property Investments. Are you part of a property syndication scheme or do you hold your own property investments? Again the revenue from these investments must be noted.
6) Offshore holdings of any nature and the revenue they produce.
7) Cash or any fixed deposits including their rates and maturity dates.
8) Any other assets like containers, or shares in private business.

In tabulating these assets one also notes the percentage of the total that each one represents. All of this will give one a clear picture of your assets. The next step is to draw up your income schedule. This will clarify your sources of income and will help in the calculation of your tax.

Your "Asset Profile" can now be analyzed according to your "Persoanl Profile". Do your assets fit your personal circumstances? Your risk profile, do they fit a pensioner's requirements? How much total revenue is being generated. Do you have easy access to the assets, i.e. are they all locked up in insurance products? Are they generating the maximum possible revenue? Are they generating too much revenue? Do they fit your age or that of your spouse? Are they tax efficient? Do they mature at the right time? This list can go on forever. It is very important for an experienced investment advisor to scrutinize your personal profile and your assets. He will comment on the suitability of the investments and will pick out any faults. If your current advisor is not following these procedures then get another one. One should not loose sight of the financial objectives of the plan. Firstly a pensioner should always sleep at night, and secondly he should realize that his assets cannot be replaced (he is no longer earning a salary).

The first task is to insure that your income matches your budget. Here-in lies the trap of reducing income if it is linked to short-term interest rates. One then "ring-fences" these assets so that they will provide at least a steady if not rising income over the rest of your life. It does not help to buy a product, which expires in 5 years time, and you find yourself with reduced capital and lower interest rates. There are several institutions which specialize in these types of investments, namely Marriott Asset Management in Durban and the Prudential Asset Managers in Cape Town. Both of these asset managers specialize in products aimed at the retired market. It is important to realize that the objective of these funds is to remove your income risk. Old-fashioned "traditional" annuities may also play a role in establishing your income.

Having established your income for the future one then assesses the balance of the assets. It is here that the quantity of the assets become important. If you are very wealthy then you will consider equity-based investments both in South Africa and offshore. If the balance is not substantial then an accumulation compound interest is the safest. There are new products on the market, which link the value of a long-term bond to the annual inflation rate. These are very popular in overseas retirement planning circles and present very little risk if held till maturity.

What is very important when establishing your "Pensioners Plan" is not to confuse the "income" generated by an investment and the "return" on an investment. Many pensioners are sold products based on their return, which includes capital gains plus income. This results in tragedies occurring when asset prices decline. The pensioners plan is thus very simple, establish your personal profile, carefully asses your assets, "ring fence" those which will produce income to match both your current and future needs, and finally invest the balance in the most appropriate assets.