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You can use the 10X Retirement Calculator for your Old Mutual RA, but you must take the following into account:
With 10X, the expected return is pre-set. The projections above are based on the default investment strategy called the 10X default glide path (unless you changed your portfolio on the output page). The 10X default glide path automatically matches your portfolio’s asset allocation to your assumed retirement age. This approach ensures that while you are more than five years from retirement you mainly own assets that are expected to deliver high returns – with expected higher volatility of returns. Over the last five years you automatically graduate into increasingly less volatile portfolios – with expected lower returns – to preserve your savings.
The projected return used by 10X is based on historic market returns, net of inflation, from 1900 to 2015. You can flex the return assumptions on the output page by changing the “default glide path” portfolio assumption to either High, Medium or Low Equity, and by projecting “below average” rather than “average” returns.
10X uses real returns. The returns used are real (after-inflation returns) to give you a sense of what your investment will be worth in today’s money terms (to give you a proper sense of its purchasing power).
With 10X, the expected return is net of fees. The investment with 10X is assumed to charge a fee according to the 10X Investment fee scale and that the client comes directly to 10X (i.e. no advisor fee). The maximum fee charged by 10X in these scales is 1.03% including VAT per annum.
10X assumed salary growth. In assessing whether you are on track to achieve at least 60% final income replacement ratio, the calculator assumes that your income will grow by 1% pa in real (after-inflation) terms.
The Old Mutual Retirement Calculator requests essentially the same inputs (gender, age, savings rate, accumulated savings) and also allows you to flex your retirement age.
The big difference relates to the return assumptions in the Old Mutual annuity calculator default mode:
1. returns are projected in nominal rather than real terms (ie they include inflationary growth)
2. the returns do not take fees into account
3. the returns are not linked to your specific or preferred portfolio.
The risk with this approach is that it could give you an inflated sense of your future wealth because the projected return does not strip out the impact of inflation, it does not consider your expected return (based on your portfolio choice) and it does not consider fees (possibly as high as 3% pa, which, over a 40-year savings life, could halve your retirement benefit).
To overcome this, you would have to change the default assumptions in the Old Mutual Retirement Annuity Calculator. You would have to factor in your “real” expected salary increases, your expected “real” return, net of the fees you are paying, and set the expected inflation rate to zero, to get a sense what your savings are likely to be worth at retirement, in today’s money terms.
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