There may only be about 500 cases of Covid-19 in South Africa, but the effect on stock markets around the world is already having an impact on local pensioners.
It is pensioners rather than all investors, who are being really hammered right now. When you save money towards a long-term goal, such as retirement, you can endure dips such as Covid-19 and the 2008 subprime lending crisis.
One of the advantages of market dips, when you are building up savings on a regular basis, is that you are buying cheap assets that will gain value as markets improve again.
But when you retire and live on an income, based on your retirement savings, it's very different. When you are drawing down income, you are reducing your capital at a far greater rate when investment markets collapse.
The pensioners, who are facing the greatest dangers, are those who are using investment-linked living annuities (Illas). And 90% of all pensioners choose this investment vehicle rather than the traditional life assurance guaranteed annuities (pensions).
Let's say today, no matter how long you have been retired, you have retirement capital of R6-million. You are drawing down 7% of your capital a year, giving you...