More than just saving
Saving money is only half the battle towards building a nest egg that will make someone financially independent when they retire; the other half is keeping that pool of capital intact.
FedGroup Life CEO Walter van der Merwe says savers can do everything right; start saving early and build their pool of capital on a consistent basis but still shoot themselves in the foot and totally hamstring their retirement savings marathon.
“Savers are often not fully aware of the damage they can do to their savings if they spend some or all of their pension savings when they change jobs. “Preservation is a major concern. I personally believe that people should not be allowed to access their retirement savings at all until they retire. “The purpose of retirement savings is to save for retirement. There is a deterrent in place in the form of paying tax but people still pay the tax and spend the money,” Van der Merwe says. He says though people may need funds to support them while they find another job if they are retrenched, funding that transition period requires another vehicle, such as insurance, so that retirement savings remain untouched.
PSG head of strategic research and support Ronald King says one of the keys to building sufficient funds on which to retire is not spending any of that money while working.
In other words, when people change jobs they need to protect their money from themselves and put the money from their retirement fund into a preservation fund.
“Government was working towards making preservation compulsory but the plan ran into considerable union opposition and perhaps now the best tack to take is to educate people as to the value of preservation and perhaps even offer them some additional incentive to preserve their retirement savings.
“At the moment there is a disincentive in place, namely money that is taken out of a retirement fund and not put into a preservation fund is taxed. Unfortunately, this does not seem to stop people from accessing and spending their retirement savings,” King says.