My re­tire­ment sav­ings?

CityPress - - Tenders -

Ed­ward asks:

Iwould like to start con­tribut­ing more to my re­tire­ment. I am 45 years of age and this year start­ing a new job which does have a pen­sion fund but that is my only re­tire­ment pro­vi­sion. I can save an ex­tra R350 a month. Can you tell me more about in­vest­ing in the mar­ket.

Cer­ti­fied fi­nan­cial plan­ner Ger­ald Mwan­di­ambira replies:

Ed­ward is in a po­si­tion many South Africans are in. Mid-life fi­nances mean that there is of­ten lit­tle sur­plus in­come to in­vest or save af­ter pay­ing school fees, car pay­ments and mort­gage bonds.

At the age of 45, one should al­ready have at least one and a half times your an­nual salary in re­tire­ment sav­ings to se­cure a fi­nan­cially vi­able pen­sion at re­tire­ment.

What is of­ten the case when peo­ple dis­cover they are be­hind in their re­tire­ment fund, they are tempted with high-risk in­vest­ments and “get rich quick” schemes. This could lead to los­ing more money. Ed­ward must bal­ance the need for cap­i­tal growth against the fact that he has only 15 years to re­tire­ment and can­not af­ford to take the same risk pro­file as some­one in their thir­ties, for ex­am­ple.

Be­cause of the rel­a­tively low amount of free dis­pos­able in­come, and no men­tion of an emer­gency fund in place, Ed­ward may con­sider a tax-free sav­ings ac­count (TFSA). Th­ese are pro­vided by all in­vest­ment houses and of­fer tax-free in­vest­ment while pro­vid­ing full ac­cess should an emer­gency arise.

The longer Ed­ward can con­trib­ute to the fund and not draw down on it, the more money he would have in re­tire­ment. As­sum­ing the an­nual av­er­age re­turn of a bal­anced fund of 12% in­vested for 20 years with monthly com­pound­ing, Ed­ward can grow his monthly R350 in­vest­ment to R350 000 by the time he is 65.

If Ed­ward stretches his sav­ings abil­ity and saves R700 a month un­der the same con­di­tions, this amount will be R700 000 and if he wants R2 mil­lion at 65, he needs to save R2 000 per month for 20 years.

If Ed­ward in­vests R2 000 a month for 20 years, he will still have another R19 000 that he can in­vest be­fore he reaches his life­time limit of R500 000 un­der the cur­rent TFSA rules.

Should Ed­ward have other sav­ings and in­vest­ments al­ready, it is rec­om­mended that he con­sult a cer­ti­fied fi­nan­cial plan­ning pro­fes­sional or his fi­nan­cial ad­viser for a tai­lored so­lu­tion that takes into ac­count his cur­rent life sit­u­a­tion and re­spon­si­bil­i­ties.

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