Retirement: how to start saving at 45

DON’T CHEAT: SMALL AMOUNTS NOW HAVE HUGE IMPACT

Keep your eye on the prize and don’t make short-term knee-jerk decisions.

Statistics show that 40% of working South African households have no savings, which means they will become dependent on government or family when they retire.

If you’re about 45 years and this

sounds familiar, there’s still hope. Clarence Botha at Liberty, recommends a few steps to get started.

Start – even if it’s just a few hundred rands a month. Don’t be daunted by large targets. These become achievable soon. If you cannot afford a large amount immediately, start small and have a plan for the future. And increase this every year;

See where money can be diverted from for saving, e.g. money that previously went to the bond or children’s education. Put this towards savings;

Always preserve your retirement savings when you change jobs, even if the amount doesn’t seem like very much you increase your money available for retirement and secondly, you preserve your tax benefits on that money;

Increase your income. Increasing income is one of the easiest things to do, but requires a change in mindset. Millions of people earn extra income by running online businesses or by making and selling things outside of their jobs; and

Use all available tax benefits. There’s a cap on tax-deductible contributions to retirement savings now. That doesn’t mean you lose the option of adding more; it means you only get that benefit when you retire, rather than immediately. Other tax-efficient investments could include a taxfree savings account or life insurance company endowment policy.

Where to save

SA Reserve Bank statistics show 16 million South Africans have savings accounts, but 40% of this money is in accounts earning little or no interest.

Botha suggests investing for growth and ignoring shortterm fluctuations. At age 45, one should look at a 20- to 40-year investment horizon. Markets will rise and fall during that period, so avoid switching funds to chase the latest winner.

“Over the long term, it really pays to keep your eye on the prize and not make short-term kneejerk decisions regarding your retirement money. If you need certainty about your income in retirement, there are products that can give you at least a portion of certainty about how much you will get when you retire.”

Your time horizon is longer than you think. Even when you’re approaching retirement, you need to plan for a good two or three decades after that. Many retirees prefer to keep working, consulting or even start new businesses.

Don’t cheat. Seemingly small amounts now will have massive impacts on your income and the duration you can afford to live comfortably later. The power of compound growth works in your favour when you’re planning 20 or 30 years ahead.

Don’t draw down excessively when you retire. Plan your retirement for the long-term and don’t binge in the first few years. How much is enough? Although the following isn’t always advisable, you’d need about R350 invested for every R1 of income you’ll require in retirement.