Publications
Partners
It feels like only yesterday that you finished school, perhaps even your studies, and got to take the first steps towards your brand new career. The excitement of knowing that you still have your entire career ahead of you makes retirement savings something that you will worry about “someday”.
But soon “someday” becomes “a long time ago” and you find yourself a much-talked-about statistic: you are one of the many people who are financially nowhere near ready for retirement. Much like the proverbial ostrich, you decide to bury your head in the sand, hoping that if you can’t see the problem, it won’t be there.
But the fact is that the problem will remain, no matter where your head is, and in the same way we have to plan and work hard to get rid of that extra bit of winter flab before summer, there is no way to fix your retirement dilemma without the same amount of effort.
Begin with 3 easy steps: SAVE, SAVE and SAVE
We all know that Rome wasn’t built in a day and that even a 1 000km hike starts with the first step, but it also isn’t as difficult as most people think.
By saving an extra R1 000 a month five years before retirement at an estimated growth rate of 10% annually, you should be able to earn an extra R500 monthly after retirement (based on an annual retirement fund withdrawal of 8%). This may not be as much as you had hoped for, but then there’s also a saying that “half of something is better than all of nothing”.
With the recent changes made to the Pension Funds Act, you can now invest up to 27.5% of your gross income on a pre-taxed basis. See it as a challenge (and a very good strategy) to try and get your contributions as close to 27.5% as you possibly can, especially when you’re close to retirement.
Hit the brakes on your retirement date
You may have dreamt of finally sleeping in the day after you have blown out those 60 candles on your birthday cake – the first day of retirement. But most people these days are still strong and healthy at age 60 and are able to work for an additional five, or even 10 years (if you’re lucky enough).
The longer you are able to earn an income while working, the longer you can refrain from digging into your pension fund, ensuring continued growth through additional contributions while you still can. Many people who willingly decide to work for longer report feeling positive about the fact that they still have the opportunity to stay active.
Retirement doesn’t mean it’s over
Let’s assume that you’ve stretched your retirement date to its utmost and that you have now reached the compulsory retirement date at your place of employment. For many this feels like a death sentence, but it doesn’t have to. There is no reason why you cannot continue to work on a casual or even permanent basis elsewhere to earn an extra income.
Every cent you can earn that can help you to avoid digging into your retirement fund will help to stretch it further. Remember that we don’t have sell-by dates like the food on supermarket shelves, meaning that we don’t know exactly how long our funds will have to last us. Although we plan to outlive most things in life, a pension fund has to be the one thing that wins the race against time.
Debt is the parasite in your pension
Address your debt today. As you approach retirement, you should like to feel free: free from mortgages, free from credit card debt and car payments. In fact, you should like to be completely carefree. The only way to achieve this is to start paying off any remaining debts immediately.
Retirement shouldn’t be seen as the end, but rather as the beginning of an exciting new adventure. Making a few minor adjustments to your life today can make a potentially massive difference to the next phase of your life.
This article originally appeared in the 8 September edition of finweek. Buy and download the magazine here.
