Why it’s time to start saving for your pension fund

SACRIFICING A FEW COMFORTS NOW means you’ll be able to live comfortably in your golden years

Retirement is easy to put off because it seems so far into the future. But according to managing director of Global & Local, Michael Haldane, there are many reasons to save for it sooner rather than later. ‘Saving money can be challenging, but think of it as the building blocks for a pleasant future,’ he says. While millennials are shaping the economy and discovering the world of technology, their priorities aren’t the same as that of previous generations. ‘They’re faced with a myriad of expenses such as paying rent, student loan repayments, bonds and rising day-to-day living expenses. It’s no wonder saving for retirement is lower down their list of priorities,’ he says. The culture of instant gratification makes it easy to spend rather than save. These are Haldane’s reasons it’s vital to start saving for your retirement now.

WHEN YOU RETIRE, WILL YOU HAVE ADEQUATE FUNDS TO LEAD THE LIFESTYLE YOU ENVISIONED?

If you’ve spent your life working hard, when retirement comes there’ll be a list of things you’ll want to do such as travel and enjoying your golden years, without having to worry about money. ‘If you want to maintain your lifestyle after you’ve retired, you’ll need an income of at least 70% to 75% of what you earned at the peak of your career,’ recommends Haldane. Your retirement will be more enjoyable if your financial plan allows you to enjoy your lifestyle and protect the assets you’ve worked hard to acquire during your lifetime.

One reason people don’t save is because they hope the South African Old-age Grant will sustain their lifestyle into old age. Haldane says the current maximum amount you can receive from the Grant is R1 780 per month – R1 800 if you’re over 75. ‘I’m sure you’ll agree, this won’t allow you to live the lifestyle you would’ve grown accustomed to when you were working,’ he adds. If you have to rely on government funding, this means you haven’t contributed enough towards your savings to last you through your retirement years.

WHAT ABOUT UNANTICIPATED EXPENSES?

Have you saved enough to receive an ongoing income during your retirement years, and do you have an additional savings pocket to address unexpected expenses that may arise? Haldane says unexpected expenses during retirement include outliving your

If you’ve spent your life working hard, when retirement comes, there’ll be a list of things you want to do

retirement savings, so investing additional funds in case your annuities run out is a good idea. ‘Unforeseen medical procedures may also arise, so it’s important to have medical savings or funds to pay medical aid premiums,’ he adds. In addition, consider general maintenance expenses on your assets, such as car repairs and household upkeep. ‘And ask yourself: if your family ran into trouble, would you be able to help?’

THE IMPACT ON YOUR FAMILY AT RETIREMENT

The last thing you want is to be a financial burden on your family when you retire. Haldane encourages you to lead by example, showing your children the importance of saving in their younger years. ‘The ideal situation is one in which you’re able to help,’ he says. One way to do this is to elect beneficiaries. ‘There’s comfort in knowing that if something happens to you, your family will benefit from the money you’ve saved,’ he says.

SAVING FOR RETIREMENT HAS A TAX BENEFIT

Haldane says your contributions are tax deductible – within a certain limit. He explains the maximum tax deduction you can make in a tax year is limited to the greater of 27.5% of taxable income, subject to a maximum contribution of R350 000. What this means is that you pay less income tax if you’re contributing to a retirement fund. He gives a practical example of the benefits of investing from a young age

(in the form of a table, left), which illustrates the difference in market values at retirement age (55), depending on the age you started saving. ‘Let’s assume you contribute R1 000 per month to a retirement fund and your investment yields a return of 6% per annum. Starting earlier will have a bigger impact,’ he says.

ALTERNATIVE INVESTMENT VEHICLES

It’s important to note that investing in a retirement fund has certain restrictions, depending on the investment product. Haldane advises you can withdraw up to one-third of your savings in cash at retirement age. ‘You need to transfer the remaining amount to an incomegenerating annuity. Only the first R500 000 withdrawn in cash is tax-free at retirement, provided you haven’t received severance packages or withdrawn from a retirement product in the past,’ he says, ‘For the best return on your investment, aim to spread your retirement savings out across several vehicles. Consider alternatives such as unit trusts, tax-free savings accounts and offshore investments.’

CHANGES IN LIFESTYLE

Due to political turmoil in South Africa, the number of locals who are considering emigrating is increasing. Haldane affirms that saving towards your retirement could have a positive impact, should you decide to emigrate. Another factor to consider is life expectancy. ‘Over the years, the idea of retirement has changed. People used to retire at 65 and pass away at age 70,’ he says. Advances in technology and medical research mean that today, people are still active at 70. Now, you have things to tick off your bucket list and the energy to do it all. Be mindful of this when you’re considering how much to save.

Haldane concludes that building up savings for a comfortable retirement should be right on top of everyone’s list of priorities. If you’re under

30, or even in your 40s, he assures, ‘it’s not too late to start saving for your retirement.’ Finally, he recommends you visit a financial advisor who’ll generate a retirement plan that will guide you in the right direction towards your retirement goals.