Sav­ing for re­tire­ment at 40:

Finweek English Edition - - MONEY -

We all know the benefits of start­ing to save early on i n your ca r eer, es­pe­cially with re­gard to re­tire­ment. Hav­ing a long-term sav­ings hori­zon, com­bined with the benefits of com­pound in­ter­est, will en­sure that you have a c om­for t a bl e r e t i r ement. Com­pound in­ter­est over a long term has a pro­found ef­fect on our f inances and en­sures that when the time comes to re­tire that we have a large sum at our dis­posal.

Un­for­tu­nately, come re­tire­ment, many find that their sav­ings are far from suff icient to see them through their golden years. Ac­cord­ing to San­lam, only 30% of re­tirees be­lieve that they will have suf­fi­cient cap­i­tal for the rest of their lives, more than one-third have al­ready de­pleted their lump sum (with lump sum de­ple­tion usu­ally hap­pen­ing within two years of re­tire­ment on av­er­age) and nearly a quar­ter of re­tired peo­ple have fi­nan­cial dependants.

With th­ese shock­ing statis­tics, how can you en­sure that you are well-pre­pared for the in­evitable re­tire­ment, es­pe­cially if you are in your for­ties or fifties and have only just be­gun to think about re­tire­ment sav­ings?

Says Anele Mbuya, se­nior mar­ket­ing ac­tu­ary at Old Mu­tual: “Af­ter re­al­is­ing that it is crit­i­cal to save for re­tire­ment, the next thing to do is to con­tact a fi­nan­cial ad­viser. Fi­nan­cial ad­vis­ers will ad­vise you on which sav­ings ve­hi­cles or prod­ucts you can use in or­der to save for re­tire­ment; in ad­di­tion your ad­viser will de­ter­mine the monthly pre­mi­ums you would have to save in or­der to bet­ter your sav­ings sit­u­a­tion.”

Karin Muller, head of Growth Mar­ket So­lu­tions at San­lam Per­sonal Fi­nances, re­it­er­ates the im­por­tance of speak­ing to a fi­nan­cial ad­viser. “Start with a fi­nan­cial plan. As part of your fi­nan­cial plan there are a cou­ple of de­ci­sions that you can take to help your re­tire­ment po­si­tion – such as pos­si­bly re­tir­ing later.

“Not only does this al­low you a longer time to save, but it also pro­vides a longer pe­riod for your money to grow. De­layed re­tire­ment is l ikely to im­pact your re­tire­ment plan.”

If they have the op­tion, many opt for stay­ing in their cur­rent jobs longer, while oth­ers choose to slow down their pace and choose a lower pay­ing, part-time job.

“If peo­ple can­not de­lay re­tire­ment, they can still de­fer us­ing their re­tire­ment in­come by f ind an al­ter­na­tive in­come source. This is a trend that we are see­ing in other places in the world where peo­ple change ca­reers at re­tire­ment – some work shorter hours or start work­ing for busi­nesses like NGOs,” she says.

But can you en­joy the same level of fi­nan­cial-free­dom dur­ing your re­tire­ment years as your work­ing years? Jeanette Marais, direc­tor of dis­tri­bu­tion and client ser­vices at Al­lan Gray, says that “to achieve the same level of in­come [if you’ve start sav­ing at 40], 70% of fi­nal salary, you need to save ap­prox­i­mately 23% of your salary or achieve an in­vest­ment re­turn of 11.5% above in­fla­tion.

“Both seem daunt­ing, but if you can achieve an in­vest­ment re­turn of 7.5% above in­fla­tion, you’ll have to save 17.5% of your salary.”

While it may sound con­fus­ing, the added ben­e­fit of a f inan­cial plan­ner will en­sure t hat you have a clear un­der­stand­ing of the path you need to take in or­der for you to re­tire com­fort­ably.

Ac­cord­ing to Muller, “A stag­ger­ing 28.5% only seek ad­vice when they are about to en­ter re­tire­ment.” Even if you f ind your­self in your for­ties or f ifties with­out an ad­e­quate plan for re­tire­ment, it is not too late to seek ad­vice – don’t wait un­til you are in your six­ties be­fore speak­ing to some­one. “The les­son is that in­vest­ment suc­cess is not only about skill. It's also about be­hav­iour. You need to be re­al­is­tic about how much cap­i­tal you re­quire to be able to en­joy an in­come in re­tire­ment close to what you had when you were still work­ing,” says Marais.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.