Planning for retirement is all about setting the right saving goal for each stage of your life, and starting as early as possible.
Most South Africas only start saving for retirement at 28 when they should ideally start at 23. Most are also saving less than they should. Here are the honest conversations you should be having with yourself at every age
When you’re in your 20s
Start saving, especially if you’re one of the 38% of millennials with no formal retirement plan or tax-free savings. You will thank yourself in an emergency or when you need to put down a deposit on a car or a house, for example. Invest aggressively. Even saving small amounts like R150 a month can earn you worthwhile compound interest. There is a huge difference between having 45 years vs 20 years to save. As you start to earn more, don’t let your expenses rack up. Rather skim off a bigger portion every month for your retirement annuity (RA) and tax-free savings.
When you’re in your 30sPreserve: If you’re considering changing jobs, don’t cash out your retirement savings. Rather preserve them in a suitable vehicle, such as a preservation fund. Be smart about promotions and bonuses promotions. Use the extra money to kick-start an emergency fund, pay off debt or boost your retirement savings. Don’t be afraid of risk: In your 30s, you should have time to recover from short-term fluctuations if you invest in a high-risk investment portfolio. High risk equals high returns. So try not to chop and change between investment portfolios – a good investment strategy and financial plan should weather market volatility.
When you’re in your 40sBy this age, if you have not yet started saving for retirement, you’re going to have to make some drastic compromises according to advice from a financial planner. Pick the right type of risk profile investment vehicle to prepare for what you plan to do once you retire. Check in with your planner regularly to ensure you’re on track. In your 40s, you’re often ‘sandwiched’ between saving for your kids and their education and supporting your parents. Take stock of your finances and make sure you have other avenues aside from your retirement savings to draw from, now and in the future. Maximise what you earn: Now’s the time to negotiate a promotion and raise. Invest the extra funds in a tax-efficient savings vehicle such as a RA or tax-free investment plan or, an endowment if you have made use of all your other tax concessions. Also, consider monetising your passion by starting a side hustle you can continue into retirement. Health is wealth. Taking your family history into account, are you saving Sufficiently for your prospective medical expenses now and post-retirement? Invest in your physical and mental well-being.
When you’re in your 50sStart thinking about what you want your retirement – ideally and realistically – to look like and do the sums so you know what you need to achieve this. Do not leave this process for too late. From a pre-retirement perspective, now is the time to look at what you have under a microscope – things like your investments and estate planning.
A common issue at retirement is to try and solve the pre-retirement issue of not splitting your assets appropriately between formal retirement savings and discretionary savings. For example, if you want to travel a lot in retirement, you’ll need to frequently draw ad-hoc capital, which means having sufficient discretionary savings available. That is where an investment plan could be your match. Again, it comes back to the goals you set. Start thinking about this now – preferably even earlier. Combining different income solutions may be the better option for your circumstances. Keep looking after all aspects of your health – financially, physically and also psychologically.
When you’re in your 60s
You’ll need to carefully manage your money to ensure you have sufficient income for the rest of your life.
Follow the ‘draw 4%’ rule and you should be fine. In a tough market of limited returns of 3–9%, drawing an income of 9–10% means you are depleting your capital.It’s about knowing what you want: Money in the bank or a great lifestyle? Continue to work towards your priorities with your financial planner. Many of us want to leave a legacy but are still supporting dependants and drawing on their retirement savings to do so. There are other ways to leave a legacy – like life insurance. While it is always advisable to start saving for your retirement as early as possible, as the saying goes, ‘It’s never too late to start’. If you do find yourself saving for retirement later in life, make it a priority to give yourself the best chance of meeting your retirement goals.
Writer: Selina September /Man | Images: Courtsey