Make retirement savings work well for you
As difficult as it is to save, it’s never too late to start putting away money
This year has seen significant market volatility. Following the credit downgrade, the cost of living continues to spiral and consumers increasingly battle to make ends meet.
It comes as no surprise that an alarming number of South Africans don’t even think about saving, let alone investing money regularly to make provision for their retirement.
As difficult as it may seem to put away an amount of money in these tough economic times, the longer you postpone it, the tougher it becomes and the less money you will have in your retirement years when you may have no other income.
An interesting proverb reads; ‘The best time to plant a tree was 20 years ago. The second best time is now.’ Ideally, people should start saving for retirement as soon as they can. For most, this should be when they begin working. However, if you haven’t been saving, it’s never too late to start.
The first step is to familiarise yourself with the retirement fund landscape to understand what corrective measures need to be taken, what risks are being borne and how to plan better for your retirement.
Previously, with the old defined funds, member’s retirement benefits were based on their salary at retirement and their service at the employer.
Their pension was promised to be a pre-determined percentage of their salary and allowed for easier planning.
Defined contribution funds, the flavour of the day, operate much like a savings account. Any contributions made, together with investment returns after fees, grow into a lump sum which the member has to use to purchase an income at retirement. Neither the lump sum nor the terms at which the income can be purchased are known in advance. They will depend on many factors, including: Level and length of time of any contributions being made;
Investment returns and portfolio choices being made;
Preservation of benefits over the working lifetime;
Market conditions at retirement which will impact on purchasing an income; and
Level of fees and expenses.
With so many variables, it is little surprise members struggle with retirement planning.
So where do you start?
Once you decide to save towards retirement, it is advisable to consult a financial adviser who will do a financial needs analysis, identify your requirements, and advise on the options available to achieve your objective.
You should also be proactive. Prior to meeting a financial adviser, do your homework and take stock of your financial situation, your expenses and savings needs. Consultation will assist in identifying: your financial circumstances; your monthly budget and savings capacity; your retirement savings; potential saving vehicles and appropriateness to your needs.
You must have an idea of your monthly budget and your savings capacity to better facilitate the financial needs analysis. Sithole is head of public sector and corporate consulting at Liberty Corporate Consultants and Actuaries , who brought you this feature. Contact Liberty on 011408-2999 or LC.CONTACT@liberty.co.z