Bank Better, Live Better
planning for retirement
It may seem like a long time away, but saving now means you’ll be able to live comfortably in your retirement years.
With medical technology and medicine improving, it’s quite possible that you’ll end up living in retirement for the same amount of time as you worked, if not longer. With a proper plan in place, and enough savings to back it up, you will be able retire with enough money.
1. Get a professional on your side
Your retirement plan should form part of your lifelong financial plan. There’s quite a lot involved in planning for retirement, so get a financial advisor who can give you good, simple advice. The advantage here is that they will be able to help with other investment ideas to boost your retirement.
Making a choice between all the financial advisors and products available can be difficult, so ask friends or family members for their recommendations too.
You can also ask your HR manager about retirement saving options at your own company. You may find your company pension fund won’t be enough to live off, so, if you already contribute to one, you could make arrangements to increase your monthly contribution to it.
2. Figure out how much you’ll need
Once you start figuring out how much you need to live well in retirement, you’ll understand why you need professional help.
Depending on who you ask, you’ll need to save anywhere from 10 – 20% of your salary and adjust that amount for inflation every year.
The life stage you find yourself at will also determine how you save toward retirement. Do you have children? Is there a plan in place for their education? Are you also supporting your parents?
Remember, some current expenses such as your bond or children’s education will decrease, while future ones such as healthcare will increase. Plan accordingly.
Tip: Even though you can’t save as much as you need to right now, save what you can. You can always increase your contribution in the future when your situation changes. Don’t put off saving for retirement.
3. Reduce debt
One of the findings at the recent CFA Society South Africa retirement meeting was that only 6% of South Africans will be able to afford to live the way they currently do once they retire. The main reason is so many of us are busy paying off debt that we don’t have anything left to save.
And according to the 2015 Sanlam Benchmark Survey, 57% of pensioners use their cash withdrawal benefit to pay off debt. Not only do you pay tax on what you withdraw, you also have less to live off in retirement.
Tip: Know your debt. List all of them, their balances, minimum payments and interest rates. Reduce the debt with the highest interest first or the one that’s close to being paid off. Use the money you save to help pay off your other debts in the same way.
4. Preserve your fund when changing jobs
Resist the urge to cash in your pension when you change jobs or are temporarily retrenched. If you do withdraw you’ll also have to pay tax on the withdrawal, and have less to take into retirement with you.
5. Free up money
In a survey from last year, 77% of you said you didn’t have enough cash to save.
In the past we’ve posted a few resources to help you free up some cash:
- Smart ways to save
- 14 ways to make the most of your money
- 6 small changes to cut your costs
- Cut back on schooling costs
- Shop and save
- Cut your fuel bill
- Electricity bills: how can you save
- Cut your cellphone bill
Don’t worry if you don’t seem to be saving enough. Over time, saving small amounts can add up to much bigger ones.
Tip: Open a tax-free savings account to boost your retirement funding. You’ll earn from 4.75% from the first rand and there’s no minimum monthly amount you need to save.
6. Follow up regularly
It’s important to check in every few months to see how your retirement fund is doing. If it’s not doing well, what action do you need to take? Is it time to invest somewhere else, or do you need to increase your contribution? Life changes may also mean you need to change your plan, and going back to it gives you an idea of where and what you need to.
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