Fin24 reader writes:
I would like to enquire about my best option to start saving
some money for retirement.
I know it's late, but it's due to various circumstances and
divorce that this only becomes an issue now. I have remarried but I also want
some retirement anniuties or unit trusts of my own.
I'm still working and earn about R7 500 net per month. I
have no insurance policies, only a Greenlight critical illness policy.
At this stage I'm still contributing quite a bit towards my
children's education and thus do not have a lot to spare at the end of the
month, R500 at the most.
What would your advice be for the best option and best
growth? I will have to work for at least another nine years. I'm now 51 years
I also don't want to pay broker commission fees as I would
rather go direct.
David te Brake, financial planner for Pioneer Financial
It's never too late to start saving for retirement.
Sure, it's best to start as young as possible, but
sometimes, despite our best intentions, life gets in the way and we need to
However, time waits for no man (or woman) and it's not on
your side. Let me explain why.
You mentioned the R500 a month you have to put away. This
next part might be best read sitting down.
Numbers don't lie, so let's take a look at some. The harsh
reality is that an investment of R500 per month will not get you very far in
retirement. The value or purchasing power of R500 nine years from now is R844.74.
Basically, after nine years your investment value will be
R82 742 (on an assumed 9% return), which would effectively provide you with a
inflation-adjusted income of R844.74 per month for 13 years.
And we both know that's not gonna cut it.
Unfortunately, you have found yourself rounding the last
corner of the race, and you're near the back of the field.
But the race is not over. What we need is to get aggressive.
By aggressive, I'm not talking about the risk of your
portfolio. Let's face it - you're in no position to be reckless.
But you can be more aggressive about the amount of money you
put away on a monthly basis. It's about priorities now.
While your children's education is a priority, there might
be some non-essential luxuries that you can afford to let go of.
Maybe it's that gym membership you never use, or a cellphone
contract costing you more than you actually need. Take a look at your lifestyle
and aggressively reassess. Every penny saved now is a little more breathing
room in retirement.
So, we've established you will need to save more each month
by whatever means necessary. The next harsh reality is your retirement age. You
may need to work for more than nine years to secure a safe and comfortable
You aren't alone in this regard. There is global trend
towards people working longer, aiming to retire closer to 70 than 60.
It's a result of a tougher global economic climate. Even the
French have increased their official retirement age - which is saying
Now, I'd like to address your desire to go direct. Perhaps
you have had a bad experience with a financial adviser in your past.
This happens I'm afraid, but I'd urge you not to give up on
our humble profession. You are 100% correct in not wanting to pay broker
commission, but only if all that broker is doing is selling you a product.
Financial advisers, as opposed to the old notion of
"brokers", are supposed to assist in determining the correct levels
of risk in your portfolio, to help you calculate of the amounts you'll need at retirement and
how much you should be saving.
This can be done in the form of fee-based financial planning
or as a commission built into the premium. People are motivated by incentives.
A good financial adviser wins only if you win. These are the guys you want
A word of warning: stay away from "brokers" who
offer investment products from insurance companies. Make use of asset managers
for your investments as the fees should be much lower, and the advice you pay for will
generally be of a much higher standard.
I leave you with the words of Albert Einstein:
"Compound interest is the eighth wonder of the world.
"He who understands it, earns it... he who doesn't,
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