Re­tire­ment sav­ings: What you need to know

Sav­ing for re­tire­ment is one of the most im­por­tant things you can do through­out your life. Un­for­tu­nately, many leave this crit­i­cal fi­nan­cial ob­jec­tive for the last minute, scram­bling to en­sure they have enough funds to re­tire com­fort­ably. Be­low, we look a

Finweek English Edition - - MONEY - BY JUSTINE OLIVIER ed­i­to­rial@fin­week.co.za

While you should ef­fec­tively take ad­van­tage of the ben­e­fit of com­pound in­ter­est while re­tire­ment is still far off – com­pound in­ter­est is when in­ter­est earned on the money you save ac­crues in­ter­est it­self, this es­sen­tially caus­ing your funds to snow­ball – there are many other fac­tors to be aware of when plan­ning your re­tire­ment. It is also vi­tal you choose the right sav­ings ve­hi­cle to suit your needs.

Jeanette Mara is , di­rec­tor of dis­tri­bu­tion and client s er­vice at

Allan Gray, says: “When in­vest­ing for re­tire­ment, it is im­por­tant to plan for fu­ture in­creases in prices and fu­ture in­creases in your stan­dard of liv­ing.

“Price inf la­tion is a gen­eral in­crease in prices and a cor­re­spond­ing fall in the pur­chas­ing power of your money. Salary in­creases that keep pace with price inf la­tion al­low you to main­tain a fixed stan­dard of liv­ing over time. How­ever, salary in­creases that ex­ceed price i nf l at ion may i ncrease your stan­dard of liv­ing and there­fore your cost of liv­ing. You can think of this as ‘ lifestyle inf la­tion’, which is the in­crease in your stan­dard of liv­ing over time.”

She says that as y ou be­come ac­cus­tomed to a cer­tain lifestyle, you will need to in­crease your re­tire­ment sav­ings to main­tain this stan­dard of l iv i ng, or other wise risk spend­ing far be­yond what your re­tire­ment sav­ings will al­low.

Another fac­tor you need to keep in mind is mar­ket volatil­ity – this ca n af­fect the longevity of your sav­ings. While mar­ket volatil­ity is to be ex­pected – it is a nor­mal part of in­vest­ing – it is some­thing you need to take into ac­count and ef­fec­tively com­bat to en­sure op­ti­mal per­for­mance of your re­tire­ment ve­hi­cle.

“To achieve above-inf la­tion [real] re­turns, you need to be com­fort­able tak­ing on some risk. History has shown that over the long term, eq­ui­ties pro­vide the best re­turn. While re­turns do not come in a straight l ine, f luc­tu­a­tions smooth out over time. If you in­vest in eq­ui­ties, you need to be com­fort­able with a bumpy ride,” says Marais.

Spread­ing your risk by in­vest­ing in var­i­ous sec­tors and in­dus­tries will en­sure you are ad­e­quately equipped to tackle mar­ket volatil­ity.

Says Mark Lape­dus, head of prod­uct de­vel­op­ment at Lib­erty In­vest­ments: “Mar­ket con­di­tions in gen­eral have an im­pact on all in­vest­ments in­clud­ing re­tire­ment sav i ngs. Inf l ation will con­trib­ute to the client’s in­come goal i ncreas­ing over t i me a nd mar­ket volatil­ity will af­fect the value of the sav­ings and, as a re­sult, the ben­e­fit that this can pro­duce.

“Hav­ing said that, this is not nec­es­sar­ily a bad thing – con­sider a client who only in­vests in cash where t he volatil­ity is very low. He will prob­a­bly have a worse out­come over the long term, com­pared with a client in a port­fo­lio that can pro­duce re­turns ahead of inf la­tion even if the port­fo­lio is volatile.”

Keep in mind, says Braam Fouché, f inan­cial ad­viser at PSG Wealth, that i nvest­ment re­turns are a net re­sult of as­set al­lo­ca­tion – your choice of as­sets – less fees. He says you need to “en­sure your sav­ings ve­hi­cles are cost-ef­fec­tive, com­pletely trans­par­ent and re­viewed regularly, with a clear in­di­ca­tion of con­tri­bu­tions, costs and re­turns. Some com­pa­nies fur­nish you with an elab­o­rate an­nual state­ment that in­cludes all but your real re­sults.”

It’s never too late to save – en­sure your f inan­cial in­de­pen­dence dur­ing re­tire­ment by start­ing to­day. Do this by con­sult­ing a f inan­cial ad­viser and look­ing into sav­ings ve­hi­cles.

Says Fouché: “Through care­ful plan­ning and al­lo­cat­ing your cap­i­tal to di­verse as­sets, you can achieve a com­fort­able re­tire­ment. Sav­ings are not only the f i xed debit-or­der or em­ploy­ment-based re­tire­ment plan you sign up for, but also the as­sets you ac­quire, like prop­erty and eq­uity, along the way. The com­bi­na­tion of these plus per­sonal sav­ings and em­ploy­ment-based sav­ings should be fo­cused col­lec­tively to gen­er­ate this ex­act re­sult [a com­fort­able re­tire­ment].”

THROUGH CARE­FUL

PLAN­NING AND AL­LO­CAT­ING CAP­I­TAL TO DI­VERSE AS­SETS, YOU CAN ACHIEVE A COM­FORT­ABLE

RE­TIRE­MENT.

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