Key elements in saving for comfortable retirement

Saving for retirement is probably the biggest, most challenging investment goal most people will face.

Given that your retirement portfolio needs to sustain you in retirement for 30 years or more, the stakes are high.

So what should you bear in mind when building a robust retirement portfolio?

First, take stock of how much income you’re likely to need in retirement, then ensure you accumulate enough capital to deliver that.

Your ability to do so will depend on how long you save, how much you save and how you invest your money (before and after retirement).

The importance of advice

It really is worthwhile consulting a suitably qualified financial adviser.

Many industry insiders – capable of doing it themselves – still use the services of other qualified financial advisers – including me.

Having an outside perspective with an unbiased view (and using your adviser as a financial coach) can help you achieve a better longterm outcome.

How much will you need?

The rule of thumb is to target a minimum replacement income of 75% of your last working salary.

Of course, this differs from person to person.

If, for example, you want to travel in retirement or leave an inheritance, it would be smart to target a higher replacement ratio.

To fund this level of income, you need to save at least 15% of your salary over your working life.

If you start working later in life, start saving for retirement later or do not preserve your retirement savings when switching jobs, this ratio creeps up.

And since life expectancy is increasing and medical science improving rapidly, you could find your retirement savings having to support you for longer than originally planned.

So see these guidelines as the starting point in your planning, not the end goal.

Maximise retirement contributions and save on your tax bill

When structuring your salary, it’s tempting to contribute as little as possible to your retirement fund – but the long-term effect of this decision is devastating.

Contribute as much as you can, and with the various tax incentives on offer, the effect on your take-home pay may be less than you imagine.

Make sure you invest with growth in mind

Next, ensure that your retirement portfolio is well diversified and you are investing enough in growth assets.

Retirement is a long-term game, and you need to ensure that your money grows as much as possible to help you reach your target.

Remember that retirement portfolios must comply with Regulation 28 of the Pension Funds Act, which aims to protect your retirement savings from the effects of poorly diversified investment portfolios.

This is done by limiting the allowable exposure to more risky asset classes in investment fund selections to prevent unnecessary risks being taken with retirement money.

For example, it limits equity exposure (including offshore exposure) to a maximum of 75% of the total portfolio.

Focus on the bigger picture

Ensuring retirement success starts with being a bigger-picture thinker.

It’s how the various elements of your plan come together that ultimately ensures that your retirement plan is robust and able to withstand the ups and downs of the markets.

● Shreekanth Sing is a technical legal adviser at PSG Wealth