Longevity is key
Time plays a key role in building a retirement nest egg that can weather the inflation and longevity storms.
Momentum Investments & Savings head of product development Mickey Gambale says one constant in the retirement savings arena is that it is all about time.
“The earlier you start saving, the longer you stay with it and do not spend any of it, the more money you will have available on retirement,” Gambale says.
However, he says the first mistake is that many people start too late and when they eventually get going, they all too often chase performance.
Performance chasers will get times when they earn well, but they also get hit by those times when “they lose money well”.
“Consistent positive returns are the cornerstone of successful long-term savings. In addition, understand you goals. It’s all about outcomes. Understand the outcomes you desire and plan accordingly! Think outcomes based investing and not performance chasing, it’s a fundamental mind shift but the one that will help you achieve financial wellness.
“People constantly underestimate the power of positive compound growth and its ability to take relatively small contributions and turn them into significant pools of capital.
“Investors often think volatility is okay, and it well may be in the short term, but the impact of losing positive compounding can be severe in terms of total portfolio value on retirement,” Gambale says.
He says another crucial element is not spending any savings along the road to retirement. In other words, when people change jobs, they need to preserve, not spend, their retirement savings.
“Saving money for retirement was your intention from the beginning, so do not change your mind when you are changing jobs. Stick to your goals and outcomes to get you on the road to financial wellness.
“Many investors look at a job change as an opportunity to pay off some debt. However, debt that is over and above an appreciating asset such as your home is overspending.
“There is no secret to saving money, simply put ‘spend less than you make’. People often spend for the month, see what is left, and save that. However, if you want to develop a strong portfolio you need to save first, spend later and do not accumulate debt,” Gambale says.
He says people often do not understand when they should borrow money and when they should not.
“There is a good time to borrow money — such as to pay for a necessary appreciating asset such as your home — not when you need to cover some short-term lifestyle items. However, the reality is that SA’s stores are full of people buying luxury items on credit. Is it really necessary?” Gambale asks.
Allan Gray director of distribution and client service Jeanette Marais says while economic conditions are tough and people are exercising caution with regard to their spending, savers are continuing to save and those who tend to neglect their retirement savings are maintaining this lack of foresight.
“Our platform shows that people who save, are still saving. We have not seen any drop-off in savings into retirement annuities (RAs) and group RAs,” says Marais.