Cape Town - As the end of the tax year draws near, many investors are taking advantage of the tax benefits of making additional contributions to their retirement annuities (RAs).
But there's much more to planning a successful retirement than simply making an additional saving once a year. Leigh Köhler, head of research at Glacier by Sanlam, looks at ways you can ensure that your retirement years are free from financial worry.
1. Start investing early
The earlier you start saving, the earlier compound interest (interest on interest) can start working for you. For each year you delay saving, the higher your monthly contribution will need to be to achieve the same targeted amount.
This will affect your disposable income while you’re still working.
2. Make additional savings
It’s unlikely that your company pension fund will sustain you over a potential 30-year retirement period. An RA lets you save over the long term, as funds invested cannot be accessed before the age of 55.
New-generation RAs also allow you to select your underlying investments, with full transparency. You could even include a personalised share portfolio within your RA investment.
An RA also lets you make additional contributions at any time, with no penalties if you stop or reduce monthly payments.
3. Keep up with inflation
Your monthly contribution to your RA will diminish in real terms over time if you don’t adjust your contributions in line with inflation.
This will result in you contributing less than you think you are. Investing more, as well as investing slightly more aggressively, could lead to an even higher return over time.
4. Expose yourself to growth assets
To keep pace with inflation, you will need a certain allocation to growth assets, such as equities, in your portfolio – even post-retirement.
If you are concerned with volatility, there are solutions available that offer downside protection while still allowing you to retain your equity exposure.
Investors should diversify across asset classes (equities, bonds, property, cash) as well as across asset managers. This should reduce the overall portfolio volatility.
There is also a strong case for diversifying internationally as expectations are that global equities will outperform the local market over the next few years.
In addition to the diversification benefits, investors are protected against the risks of rand depreciation.
6. Stick to your investment strategy
Generally, investors who have consulted with a qualified financial adviser and drawn up a diversified, risk-profiled plan will benefit by sticking to that plan over the long term and not reacting to short-term "noise" in the market.
Investors who sell equity investments when the market is down tend to miss out when the market rallies again. Even missing out on a few good days in the market can reduce your returns.
7. Look after your health
You should prioritise health and medical care when saving for retirement, as medical costs can form a large percentage of a retiree’s spending.
It’s well documented that medical inflation is much higher than general inflation. Nothing is enjoyable without health, so staying active and doing everything you can to stay healthy should be a priority at any age.
8. Keep active and interested in life
Retirement options aren’t what they used to be. These days retirees are opting to start new businesses and even further their studies.
These activities can give meaning and purpose to your golden years while allowing you to continue playing a role in the economy. The message is clear – don’t stop planning, working or dreaming.
9. Talk to a qualified financial adviser
A qualified financial adviser is invaluable in helping you draw up a realistic plan, while keeping emotions out of the decision-making process.
Certain investment vehicles may be more suited to your individual circumstances than others. An adviser will be able to look holistically at your investment plan, retirement plan and tax situation, and advise you accordingly.
10. Take responsibility
No one said it was going to be easy. But you can do a lot for yourself by taking an active interest in your investments, reading and staying up to date on the markets.
Products change and sometimes investment views change too. So be informed, ask questions and take control of your future, starting today.
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