Make re­tire­ment sav­ings work well for you

As dif­fi­cult as it is to save, it’s never too late to start putting away money

Sowetan - - Your Money - Mathias Sithole

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

/ 123RF

Prior to meet­ing with a fi­nan­cial ad­viser, take stock of your fi­nan­cial sit­u­a­tion, your ex­penses and sav­ings needs.

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