EXCELSIOR INVESTMENTS. Pre-Retirement

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2 Planning makes the difference A financially secure retirement requires careful planning from the day you start working. Research shows that only about six percent of all South Africans can afford to retire. The rest have to keep on working if they are lucky enough to secure a job or rely on family, state and welfare support. Depending on the goodwill of others is certainly not a very dignified way of spending your old age! Those who end up financially dependent or destitute during retirement normally haven t planned properly. With proper planning, YOU can be one of the lucky six percent whose golden years are the best years of their lives. How much you need to save for a secure retirement To maintain your pre-retirement standard of living, you will need approximately 75% 80% of your salary in the year before retirement, or a capital amount of roughly 13 times your last working year s salary. Using reasonable assumptions about future salary increases and investment returns, the following graph shows the percentage of your income you need to save starting at various ages, to be able to retire with an income of 80 percent of your final annual salary, assuming that you retire at age 65 and that your post-retirement income is protected against inflation. % of salary 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% Age start saving Source: Liberty Life The message is clear a financially secure retirement requires an early start.

3 Why a secure retirement is becoming more difficult to achieve While an early start to retirement planning has always been important, a number of trends are making it even more important. 1. Increased longevity Due to improved medical technology people enjoy better healthcare and therefore live longer, so their retirement funds need to last longer. This makes it extremely important to regularly review your retirement plan to ensure that it remains on track. 2. Healthcare costs More and more healthcare-related costs are being passed on to individuals after retirement. Many companies no longer subsidise medical scheme contributions for pensioners, and many pensioners have been forced to reduce their medical scheme benefits in order to be able to afford the premiums. As the graph below shows, the average annual cost of medical care increases with age, so your retirement plans should allow for this expense, or for the cost of comprehensive medical scheme cover after retirement Average medical cost (Rand) Age Source: Liberty Life Please note: These costs are based on average 2004 expenses in each age group. Future inflation has not been taken into consideration.

4 3. Early retirement The reality in South Africa is that more and more people are being offered early retirement. This has the same impact as increasing longevity in that your retirement funds need to last for longer, but you also have less time to save these funds. The graph below illustrates the impact of early retirement at different ages on the purchase price required to provide an annual income of R , increasing at the rate of inflation each year, for the rest of your life. The earlier you retire, the more your cash layout will need to be to secure a given level of income. Also note that, because women have a longer life expectancy than men, they will pay a higher purchase price to receive the same income during retirement Purchase price needed Male Female Age of retiree Source: Liberty Life Why a retirement annuity can assist you to retire financially secure Research has shown that, not only is the retirement funding portion of the average retirement fund less than 15% of salary, but rising risk benefit and administration costs are increasingly eroding the ultimate benefits. This means that even if you have a company retirement fund, you may not end up with sufficient funds to enjoy a comfortable retirement. Whether you work for a large corporation and have a company retirement fund, or are self-employed, a retirement annuity is the ideal vehicle to use to secure or supplement your retirement funding.

5 As well as being a disciplined way of saving for your retirement, it also has the following advantages: Tax benefits The government provides a number of tax incentives to encourage people to save for retirement. Your contributions to a retirement annuity are deductible for tax purposes up to certain limits. This means that your retirement contributions can be enhanced by the allowable tax deduction. In addition, the taxation of the investment returns achieved on the underlying assets of retirement annuities is at lower rates than a direct investment in similar assets by high income individuals. At retirement a certain amount of your lump sum may be tax free. Retirement annuities are therefore one of the most tax-efficient ways of saving for retirement. Portability A retirement annuity is independent of your employer so your retirement funding is not affected if you change jobs. If you have your own business, there are even more advantages: Protection from creditors Your retirement annuity cannot be attached or used as collateral, so your retirement is safe, even if something happens to your business. Ad-hoc payments You can make ad-hoc payments to your retirement annuity based on your annual drawings from the business in order to maximise both your retirement benefit and the tax deductions you enjoy. Secure your retirement with Liberty Life In addition to an early start, there are a number of other important considerations which make saving for your retirement with Liberty Life very attractive: 1. Cost effectiveness Liberty Life s Excelsior Investments Retirement Annuities have a competitive charge structure. While costs are not everything, lower charges do mean more capital for your retirement.

6 2. Performance STANLIB Asset Management is the primary asset manager on the Excelsior Investments range. They have a long track record of producing inflation beating returns and top-ranked performance. In addition, the portfolios of a number of other top-ranked fund managers are also available. 3. Flexible investment choice Investment portfolios ranging from cash to equities, and including both local and offshore options, are available under Excelsior Investments. More importantly, you have the flexibility to switch between these options whenever you want. 4. Guarantees Liberty Life provides minimum performance guarantees on certain portfolios. This provides you with peace of mind, particularly as you get closer to retirement. You can enjoy a financially carefree retirement Retirement planning is a life-long process. You should start as early as possible preferably from the day you receive your first pay cheque and regularly review your retirement planning to make sure you are still on track. Bear in mind that retirement planning should not be done in isolation, but should form part of your overall long-term financial plan. An accredited Liberty Life financial adviser or broker can do an analysis of your financial needs to assist you in your retirement planning. The information contained in this document does not constitute advice by Liberty Life. Any legal, technical or product information contained in this document is subject to change from time to time. If there are any discrepancies between this document and the contractual terms or, where applicable, any fund rules, the latter will prevail. Past performance cannot be relied on as an indication of future performance. Investment performance will depend on the growth in the underlying assets, which will be influenced by inflation levels in the economy and prevailing market conditions. Liberty Group Limited an Authorised Financial Services Provider in terms of the FAIS Act (Licence No. 2409) design@liberty E 0094/06