Are you investing for retirement or for life?

• Retirement is one financial goal, but your wealth may also need to fund property, education, travel, family commitments and opportunities along the way.
• Defining what you want your money to achieve can make it easier to decide how much to invest, where to invest it, and when you will need access to it.
• Different goals may require different investments. Retirement products, tax-free savings and discretionary investments each have different characteristics and access rules.
• A salary increase, bonus, new child or career change is a reason to revisit your investment plan and potentially redirect additional money towards your priorities.
• Consistency matters more than chasing the latest investment opportunity. A financial plan needs to be realistic enough to stick to as life and markets change.

Ask someone why they invest and there’s a good chance retirement will feature somewhere in the answer.

This is sensible as at some point most of us will stop earning a salary, or at least earn less, and the wealth accumulated during our working years will need to take over.

But there are potentially decades between your first pay cheque and your last.

During that time, you may buy a home, educate children, help family, start a business, take a sabbatical, travel or decide that working until 65 isn’t particularly appealing after all. Your money needs to make room for those ambitions too.

Episode five of Investec’s Mastering the Basics  series explores a simple idea: instead of building an investment plan around retirement alone, start with the life you want your wealth to support.  

“Retirement is an outcome. It’s not a specific product,” says Johan Loubser, Head of Financial Advisor Enablement at Investec. “The starting point is really to understand what you are building wealth for.”

Put a name to your goals

“I need to save more” is difficult to get excited about.

Saving for a child's education, an annual overseas holiday or the option to stop working full time at 55 is far more tangible, and appealing.

Loubser believes this specificity can make investing more sustainable. Instead of working towards an abstract number at 65, you begin to see what that capital is intended to provide.

It also helps when different goals compete for the same rand.

Updating your plan when life changes

Your financial plan should take notice of life-milestones.

“A salary increase, a bonus or the birth of a child can alter your priorities and what you want to invest where. So, what we see is our clients will start discretionary investments or add to existing ones,” comments Kate Robson, Head of Investec My Investments.

The important part is deciding where that extra money belongs before it simply disappears into a more expensive lifestyle.

“When these things do come along, you must understand your priorities. Is it first saving up for my rainy-day fund? Is it for education? Is it for retirement?”, explains Loubser.

The reverse also applies. If income falls or circumstances change, a plan may need to adjust rather than forcing you to maintain contributions you can no longer comfortably afford.

Investing in multiple goals

Provided the basics are covered and you have the financial capacity, you can invest for several goals simultaneously. This is where sequencing matters.

Start with the needs you can’t easily compromise on. Emergency savings and day-to-day financial security provide a base. Retirement funding may run alongside them because of its long-time horizon. As your income and wealth grow, additional goals can be layered into the plan.

“You need to make sure that your day-to-day expenses are being covered as well as your savings and investment goals. Once those core needs are addressed there’s definitely an opportunity that you can save for multiple goals at the same time”, says Robson. 

Those goals don’t all have to receive equal amounts, nor will their priority remain fixed for life.

Which investment belongs to which goal?

This depends on what your purpose is for your investment goals. So, start with when you need the money and what you need it to do. The product comes later.

Retirement annuities, pension and provident funds can offer tax advantages for retirement saving, but access is restricted. Tax-free savings can provide another way to accumulate long-term wealth. Discretionary investments, including unit trusts and offshore investments, can offer greater flexibility for capital you may need at different stages.

This is particularly important when you have several goals running concurrently.

“If we divide it up from a retirement planning perspective into income needs and capital needs, we have to consider what different products are available to us,” says Loubser.

The same thinking applies beyond retirement. When will you need liquidity? Will you spend the money in South Africa or elsewhere? Is the goal fixed or likely to change?

As Robson puts it, once you understand those things, “the product then becomes effectively secondary in the conversation”.

Don’t fall prey to the next shiny investment opportunity

Investors today have access to an extraordinary amount of information, along with a steady stream of new funds, themes and investment ideas. That can make a carefully constructed portfolio suddenly feel rather dull, but dull isn’t necessarily a problem. 

Before adding something new, Loubser suggests asking whether it solves a need that isn’t already being met or genuinely complements the investments you have.

“Long-term discipline oftentimes is what gets you to that goal. It’s not always about chasing the trends or making money quickly,” says Loubser. 

Robson calls it the “next shiny thing”. Her counterweight is consistency: regular contributions and time in the market can matter more to a long-term plan than reacting to short-term performance or continually changing investments.

There is little value in designing a theoretically perfect strategy if you abandon it every time markets become uncomfortable.

“The best financial plan is one that you’ll stick to,” she says. “So don’t over-commit yourself.”

How much of an emergency fund is enough?

Three to six months’ worth of income is a commonly used starting point for an emergency fund, but the right amount depends on how you earn and what you spend.

A salaried employee with predictable monthly earnings faces a different set of risks from an entrepreneur, or someone whose remuneration fluctuates significantly.

Behrendt suggests making the exercise more personal. Imagine your income stopped tomorrow. Which expenses would continue? Which could you cut or pause? And could new costs arise at the same time?

“For most people, trying to have at least six months’ worth of funding in place is appropriate. But for some people it could be a little bit more,” he says.

There is also the question of where to keep it. Immediate access matters, so some emergency money may belong in cash. But if the fund is substantial and remains untouched for years, holding all of it in a savings account may not be the most effective approach.

Why shouldn't school fees and emergencies share the same pot?

Spending your emergency fund on something you knew was coming, leaves you without a buffer when something you didn't expect arrives.

The confusion is understandable. Money being accumulated for next year's school fees and money held for an emergency might sit in similar short-term investments, but they have entirely different jobs.

“The last thing that you would want is for one of our clients to use their emergency savings to deal with a planned expense that hasn't been appropriately catered for, only to face an unexpected event without that safety net,” says Behrendt. 

Giving each pool of money a clear purpose makes it easier to see whether your financial foundation really is secure.

What happens to my investment plan if my income stops?

Your income pays today's expenses. While you're accumulating wealth, it is also what funds tomorrow. That makes the ability to earn an income an asset in its own right.

Sinenhlanhla Sithomo, Head of Insurance and Investments at Investec Life, points out that an illness or injury can have two financial consequences. There is an immediate loss of earnings, but there may also be an interruption to retirement and discretionary investment contributions.

“You don't want that loss of income to be impacting your ability to continue investing and to continue to save,” he says. 

Emergency savings can absorb some interruptions, but income protection is designed to replace your earnings when illness, injury or disability prevents you from working, subject to the terms of the policy.

For entrepreneurs and professionals whose businesses rely heavily on their ability to generate revenue, the calculation may extend beyond personal income to expenses from the business.

Aren't medical aid and gap cover enough?

Medical aid helps fund qualifying healthcare costs, while gap cover addresses certain shortfalls. But a major illness or serious accident can create expenses well beyond medical bills.

Sithomo distinguishes this from income protection. Income protection replaces a portion of your regular monthly earnings if you cannot work due to any illness, injury, or disability.

It's designed to protect ongoing earnings, and is often seen as the foundational safety net because your ability to earn funds everything.

Then there is severe illness cover. Severe illness cover is intended to provide a once off lump sum that can help meet new costs associated with qualifying serious illnesses, like cancer, a heart attack, or stroke. 

Those costs might include extended recovery, rehabilitation, changes to a home or access to treatments that aren’t fully funded through existing healthcare arrangements.

Protecting your wealth is part of building it

Long-term investing depends heavily on being able to leave the money invested and, ideally, continuing to contribute to it. An unexpected event can interrupt both.

That is why emergency savings and appropriate protection belong in the same conversation as investments. Their job is not to generate long-term wealth. Their job is to give that wealth a better chance of remaining intact.

Sithomo describes the benefit simply: “My investments will be intact even if something happens to me.”

A financial plan cannot prevent the unexpected. A stronger foundation can make it less likely that one difficult year undoes years of careful investing.