Don’t Overlook ETFs as Part of Your Overall Retirement Planning

Exchange Traded Funds (ETFs) offer many benefits to investors – they’re liquid, cost-effective and provide a simple way to diversify your investment portfolio. Because they’re so versatile, they can also form part of your longer-term savings or retirement portfolio, alongside or in addition to your occupational retirement fund.

Your retirement products will provide you with a regular income, while your stand-alone ETF investment is there for additional liquidity when needed.
 

What is an ETF? 

An ETF is a basket of securities that tracks the performance of an underlying index (such as the FTSE/JSE Top 40 Index, for example) or an asset, like property. You can read more about ETFs here. 

After identifying your risk profile, and a suitable ETF or combination of ETFs to match your profile, you can make a lump-sum investment or automate your monthly investing through a recurring investment. Continuing to do this over the long term allows you to benefit from rand cost averaging, which means that your money buys more when markets are down. You also benefit from the compounding effect as you earn interest on interest over time. This makes ETFs a convenient way to add to your long-term savings.
 

How Do I Know Which ETF is Right for Me?

If you’re investing on your own, knowledge is your best friend. If you’re unsure of where to start, read more about the Satrix Access Range, which is a great starting point if you’re new to investing. You can also learn more about our full range of ETFs here. We also recommend consulting with a financial adviser to assist you with planning for your retirement.

• Know Your Objectives and Investment Time Horizon: Are you investing for the long term only, or do you want to access some of your savings in the medium term? Some ETFs are more focused on growth, others have more focus on income.
• Know Your Risk Tolerance: If you’re wanting to grow your money over the longer term, you may need to accept a little more risk, in other words, your investment will fluctuate in line with market movements. If you’re looking for less risk and less volatility, there are also more conservative ETFs to suit your needs.
  
  

Retirement Planning

I’m Not Planning to Retire, So Why Should I Save for Retirement?

• Starting Early Makes the Goal More Manageable: The best time to start saving for retirement is from your very first salary. The amount you will need to invest monthly, early in your career, will be much smaller than the monthly investment amount required for you to reach the same desired lump sum if you started saving 10 years after you started to work. It will likely be an unmanageable percentage of your salary. Starting early makes reaching your retirement savings goal more manageable.
• Give Yourself Options: Retirement age will depend on your employment contract, but retirement day will eventually arrive. Even if you’re self-employed, you should not rely on working forever as life may have other plans and throw you an unexpected curve ball leaving you unable to work like you did before. If this happens, you’ll have peace of mind knowing that you have retirement capital built up. Most of us hope to remain healthy and active (and working) into our 60s, 70s and beyond – the capital you’ve built up will give you options. You can choose whether or not you want to work, rather than work because you have to.
• The World of Work is Changing: If you’ve just recently started working, the workplace of the future will look vastly different to what we know today. You may change careers several times along the way, or even hold a portfolio of different projects at the same time. You may want to take a sabbatical along the way. You may even think of starting your own business when you’re past the official retirement age.  Whatever you choose to do, if you’ve made regular savings along the way, having a nest-egg will give you security and peace of mind, along with the ability to pivot to your next life stage or adventure more easily.  
• A Longer Life Means More Medical Costs: While we don’t like to focus on the negative, we do need to be mindful that if we’re going to be living longer, we’ll need to fund our medical costs for longer too.

Read more here on why we tend to prioritise the here and now, rather than thinking about the future.

How Can ETFs Form Part of My Retirement Savings?

It’s always advisable to have discretionary, or liquid, investments in your portfolio that are separate from your retirement savings products. These investments, although more liquid, can still be used to supplement your retirement savings if held for the long term.

Tax-Free Savings Accounts (TFSAs), ETFs and index-tracking unit trusts are all options you could consider. A TFSA is designed to be held for the longer term so that you benefit from the compounding of the tax savings within the investment. This makes it an ideal vehicle to supplement your retirement savings. If you contribute the maximum annual amount of R36 000 to your TFSA, it will take you almost 14 years to reach the overall limit of R500 000 which is applied to TFSAs. It’s advisable not to withdraw any amount during this build-up phase, as any withdrawal will count towards the R500 000 limit. You can read more on the differences between tax-free savings accounts and retirement annuities, and their benefits here. Satrix offers a TFSA account automatically when you open your SatrixNOW account.

ETFs and unit trusts are known as liquid investments because you’re able to withdraw from them at any time, so you can access funds in the short term, should you need to. However, the longer you hold the investment, the more chance it has to compound the returns and grow your wealth.

A good way to do this is to think about your goals, and whether they’ll materialise over the long, medium or short term. You can then match each goal to a savings product. You could, for example, have a more conservative ETF for a short-term goal, such as a short holiday or a course of study you’d like to do. A more aggressive, or growth-oriented ETF, could be held for a longer period, and perhaps supplement your retirement income.

ETFs allow you to invest, cost efficiently, throughout your working career, making them an ideal investment for the longer term. ETFs can be bought individually, or you could even include them in your TFSA.

While you can invest yourself via SatrixNOW, a financial adviser can help you construct your portfolio optimally, so you have the right proportion of retirement and discretionary – or liquid – savings.
 

What Does the New Two-Pot Retirement System Mean for My Retirement Savings?

With effect from 1 September 2024, investors are permitted to withdraw a portion of their retirement savings before reaching the legislated retirement age, which is typically 55 in South Africa. This applies to your occupational retirement fund or your Retirement Annuity (RA).

The two-pot system will see your retirement savings divided into three pots – a savings pot, a retirement pot and a vested pot. You can read more detail on the two-pot system here, but essentially you’ll have access to your savings pot once a year (subject to legislated limits), while your retirement pot will lock in your savings for your retirement.

Ideally, having other liquid investments in your portfolio will mean that you won’t need to withdraw from your savings pot.

How Do I Get Started?

Having decided that you’re ready to diversify your retirement savings strategy by investing in ETFs, a recent article offers some practice on getting started:

Start Small: With low minimum investments at Satrix, you can start with whatever you can afford.
Be Consistent: Regular, consistent investments can help you benefit from compound growth.
Use Available Resources: Take advantage of educational materials and tools provided by ETF issuers.
Seek Professional Advice: Consult with a financial adviser who can help tailor a strategy to your specific needs and goals if you’re unsure or have any questions.
Review and Adjust: Regularly review your investment strategy and adjust it as your goals or circumstances change.

The SatrixNOW platform makes it easy to invest in Satrix ETFs and unit trusts. If you’re unsure where to start, our Access Range offers four flagship funds, catering to different investment horizons and risk appetites. You can also choose to invest in a Tax-Free Savings Account (TFSA) or Retirement Annuity (RA) on the SatrixNOW platform too.
 

Conclusion

Overall financial planning – which includes retirement planning – is ideal if it commences early on in your working career. A financial adviser can help you structure a savings strategy best suited to your needs and goals, but it’s a good idea to consider a combination of retirement savings products, as well as more liquid investments.

ETFs offer both liquidity and diversification. As with all investments, such as unit trusts, a general rule of thumb is to ignore market “noise” and leave your investments to grow over time, so long as you have the right advice, your investment strategy is aligned to your goals and your circumstances haven’t changed. Your investment strategy should be reviewed at least once a year, but not changed unless your circumstances have changed.

Disclaimer

Satrix Investments (Pty) Ltd is an approved FSP in terms of the Financial Advisory and Intermediary Services Act (FAIS). The information does not constitute advice as contemplated in FAIS. Use or rely on this information at your own risk. Consult your Financial Adviser before making an investment decision.
Satrix Managers (RF) (Pty) Ltd (Satrix) is a registered and approved Manager in Collective Investment Schemes in Securities and an authorised financial services provider in terms of the FAIS. While every effort has been made to ensure the reasonableness and accuracy of the information contained in this document (“the information”), the FSPs, their shareholders, subsidiaries, clients, agents, officers and employees do not make any representations or warranties regarding the accuracy or suitability of the information and shall not be held responsible and disclaim all liability for any loss, liability and damage whatsoever suffered as a result of or which may be attributable, directly or indirectly, to any use of or reliance upon the information.

*Tax Free Savings Accounts: Annual limit of R36 000, lifetime limit of R500 000, 40% tax penalty applicable for contributions above the limit, per individual. For more information visit https://satrix.co.za/tax-free-investments