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We are truly blessed when we consider how convenient things have become. You can walk into any convenience store or supermarket, visit the fresh produce section and get a fairly accurate idea of how fresh a product is just by looking at the sell-by date.
Although sales of most items these days are based on the sell-by principle, we’re not that lucky when it comes to life itself. You simply don’t know what your personal ‘sell-by’ date is, which makes this the most challenging variable to consider when planning for retirement.
You have to start with your retirement planning as early as possible to ensure that you will have enough money for when you are much older.
It’s a scientific fact that people live longer these days, which means that we will either have to work longer before we can retire, or that we will have to save more while we are still working.
In Amy Bell’s 2010 article, Raising the retirement age, we learn that this has already been taken into consideration in countries such as Britain, France and Germany, all of whom raised their respective populations’ retirement ages.
With February and another financial year-end looming, now is the perfect time to take another look at your retirement budget.
Along with the several benefits offered by new tax legislation as from 1 March, there are a few smaller and simpler goals that can be tackled by the respective age groups as set out below:
20s: In your 20s, your focus should be on paying off any outstanding debts, such as overdraft facilities, credit-card debt and study loans.
30s: In your 30s, it may be necessary to shift your financial goals towards the purchase of a house or perhaps to expand your family. Carefully monitor existing debts and make sure that you are making good progress in paying them off. This is also an excellent time to join your company pension scheme or to invest in a personal retirement annuity. Other long-term investments should also be considered at this stage.
40s: In your 40s, you should focus on saving. My personal preference for long-term savings remains share portfolios, but for those who find the risk of investing in shares too high, a savings account can also be considered. At this point, all salary increases and bonuses should be seen as an opportunity to contribute more to your pension fund or savings account.
Finally, your 50s: The time has come to decide what your exact retirement age will be. This must serve as a guideline for your savings strategy going forward, as this will determine the amount of effort you will need to put into reaching your retirement goals. Your strategy should include the following:
1. Take control:
If you have any control over where or how your pension is invested, whether it’s your personal pension or a company pension fund, make sure that you know what your investment composition looks like. If your pension fund or retirement annuity has started to lean too heavily towards riskier assets such as shares, you should consider safer investment options at this stage.
2. Increase your contributions:
If possible, increase your monthly savings contributions to ensure that you put away as much money as possible before you retire. With the new levels being raised to 27.5% of your gross income (with an annual limit of R350 000) which you can invest in retirement annuities and related investments, effective March 2016, this process has definitely become more tax efficient. But be sensible about saving – don’t go overboard as it remains equally important to have enough money available to cover your monthly expenses comfortably.
3. Consider other options:
If you know that you won’t succeed in saving enough prior to retirement and you would like to increase your potential retirement income, consider other investment options, such as high dividend-yielding shares.
4. Plan ahead:
Your future remains uncertain, therefore, you need to consider additional factors as part of your retirement planning, such as the possibility of requiring old age care. This may seem unlikely while you are still young and healthy, but it cannot be ruled out as a possibility when you are much older.
Your savings can already start to pay off in your 50s as you approach your personal retirement age, but be sure to continue saving as much as possible during this decade so that you can reap the rewards before you reach your personal ‘sell-by’ date.
This article was featured in the 11 February 2016 edition of finweek. Buy and download the magazine here.
