The jour­ney to re­tire­ment will come with its share of sac­ri­fices, but if you make sure you fo­cus on these six points, it will all be worth it once you get there.

Finweek English Edition - - Front Page - By Schalk Louw ed­i­to­rial@fin­week.co.za Schalk Louw is a port­fo­lio man­ager at PSG Wealth.

there is a well-known say­ing that “life is about the jour­ney, not the des­ti­na­tion”. Fol­low­ing my re­cent ar­ti­cle ti­tled How much do you need to re­tire com­fort­ably, (avail­able at http://bit.ly/2toLBVE) many read­ers have ap­proached me with a fol­low-up ques­tion: How do I know if I’m on the right track?

Many of these con­cerned read­ers re­ferred to the ini­tial in­come level of 75% to 80% of their last year’s salary that they should aim to pro­vide for in re­tire­ment. This in­come re­place­ment ra­tio should be used as a suf­fi­cient start­ing point in cal­cu­lat­ing how much you need to re­tire in or­der to main­tain cur­rent liv­ing stan­dards. The truth is, how­ever, that that fig­ure can be in­flu­enced by so many vari­ables that it can make the cal­cu­la­tion of the ac­tual amount you will need one of the more com­pli­cated tasks to tackle. Although that fig­ure may be your “des­ti­na­tion”, de­ter­min­ing where you are in the “jour­ney” to re­tire­ment is even more im­por­tant. After giv­ing it some thought, I reckon you are close to re­tire­ment if you have the fol­low­ing six points firmly in place:


This is a topic that I have dis­cussed on nu­mer­ous oc­ca­sions, es­pe­cially in my ar­ti­cle ti­tled It pays to set­tle your debt (22 July 2016), where I pointed out the huge dif­fer­ence that pay­ing off a lit­tle ex­tra on your out­stand­ing debts can make in the longer term. When you are ready for re­tire­ment, you ul­ti­mately should also like to be debt-free.


So, now you are debt-free, but what do you do when you sud­denly ex­pe­ri­ence a mas­sive fi­nan­cial set­back? Un­for­tu­nately, the sad fact is that many in­di­vid­u­als will re­turn to their old ways and make new debt. To avoid this, it is ad­vis­able that you set aside at least six months’ worth of net in­come in a sav­ings ac­count as a safety net for pos­si­ble un­fore­seen ex­penses or life events.


The cur­rent max­i­mum cu­mu­la­tive tax de­duc­tion on re­tire­ment funds (like a re­tire­ment an­nu­ity) is 27.5% of your tax­able in­come, or an an­nual max­i­mum of R350 000. This re­mains one of the most tax-ef­fi­cient ways to save for your re­tire­ment. If you are in the priv­i­leged fi­nan­cial po­si­tion to al­ready con­trib­ute the max­i­mum to­wards your re­tire­ment in­vest­ments, you are def­i­nitely tak­ing a huge step in the right di­rec­tion to­wards your re­tire­ment des­ti­na­tion.


Although it is al­ways im­por­tant to en­sure that your port­fo­lio is prop­erly di­ver­si­fied across the dif­fer­ent as­set classes, it be­comes even more im­por­tant as you get older, sim­ply be­cause your needs and risk pro­file may change. Be sure to con­sult your fi­nan­cial ad­viser at least once a year to de­ter­mine whether your in­vest­ment goals are still in line with your risk pro­file and port­fo­lio com­po­si­tion.


I of­ten use the say­ing, “If you can mea­sure it, you can man­age it.” Make a list of all your as­sets and li­a­bil­i­ties to “mea­sure” ex­actly how much you are worth in fi­nan­cial terms. As a rule of thumb, it is rec­om­mended that you should have roughly 12 times your an­nual in­come saved in as­sets/ in­vest­ments (some ar­gue this fig­ure should be as high as 17 times, given a low-growth en­vi­ron­ment). The most im­por­tant fac­tor, how­ever, is to eval­u­ate this on a reg­u­lar ba­sis to en­sure that this fig­ure is still suf­fi­cient.


This will vary from in­di­vid­ual to in­di­vid­ual, but the fact re­mains that if this hobby or sport (whether phys­i­cal or in­tel­lec­tual) starts to take up more and more of your time, you are def­i­nitely close to ready for re­tire­ment. Just be sure that you have done your home­work prop­erly in terms of points 1 to 5 above be­fore you start to “play”.

Re­mem­ber that the jour­ney to re­tire­ment won’t al­ways be an easy one. It will come with its fair share of sac­ri­fices, but the des­ti­na­tion will be worth it in the end. Re­ward your­self along the way with in­terim re­wards like a nice hol­i­day when you’ve reached cer­tain goals. We all have only one jour­ney, so make sure that yours is en­joy­able and suc­cess­ful.

As a rule of thumb, it is rec­om­mended that you should have roughly 12 times your an­nual in­come saved in as­sets/ in­vest­ments (some ar­gue this fig­ure should be as high as 17 times, given a low­growth en­vi­ron­ment).

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