How to retire comfortably

RULE OF THUMB: SAVE MORE AND WORK IN RETIREMENT

Cashing out benefits is arguably the single biggest factor keeping investors from retiring comfortably.

Cashing out benefits is arguably the single biggest factor keeping investors from retiring comfortably, as nonpreservation effectively “resets” their position. Members shorten their investment horizon and lose the initial benefits of compounding.

While retirement benefits grow tax-free within a retirement fund, cashing out early has tax implications.

Barker says informed decision-making when changing jobs, with the efficiency offered by umbrella funds and the opportunity to increase contributions, can push average replacement ratios up to 50 (closer to R8 000).

In March 2016, Treasury increased the deduction cap for all retirement fund contributions to 27.5% of the greater of remuneration/taxable income, incentivising individuals to save more for retirement. While most of us can’t afford to contribute almost a third of our income to a retirement fund, even a small incremental increase yearly can go a long way to improve the situation.

For those who haven’t saved for retirement, it can be worthwhile to start saving just a small percentage of their salary each month. One way of softening the blow is to increase the contribution percentage when salary increases are rewarded.

Many retirees are using their skills sets to start new ventures or work a few hours a week, which can make a big difference to retirement income.

Retirement laws have changed. People retiring from employers may now leave their money in their retirement funds and retire from the fund later.

While investors have no control over market performance, it’s important to ensure you take enough risk in line with your retirement goal and investment horizon. In an effort to simplify investment choices for retirement fund members, funds often choose names like “aggressive”, “moderate” or “conservative”, which may create the impression that typically risk-averse investors should be cautious. But even older members must ensure they take sufficient risk in line with their retirement goals.

Start new ventures in retirement and stretch savings.

Picture: Shutterstock Momentum says South Africans change jobs every five years on average. Roughly 90% of employees cash out their retirement savings when they jump ship.