Fear not, all is not lost. While starting as early as possible is preferable, it is
still possible to make provision for your retirement starting at 42.
But you’ll have to save harder, work for
longer, and invest wisely so that what savings you do have, achieve the best
your retirement income is a factor of how early you started saving, how much
you’ve saved, the investment returns you’ve enjoyed and the amount lost through
not preserving your pension or provident fund savings when you changed jobs.
When you reach your forties, you can only influence two factors: how much you
contribute and the investment choices you make. It’s too late to think about
starting early, and the retirement money you cashed in between jobs is long
of thumb for retiring independently is that you will need a capital sum of
15-20 times your final annual pre-tax income. This will give you an income
equal to about 70% of your income at a retirement age of 65 (if you buy a
conventional pension-providing product).
your personal circumstances, to achieve this level of income (70% of final
salary) you will need to save about 30% of your salary, or achieve an
investment return of 15% above inflation.
Both seem daunting, but there are
ways to lessen the burden. If you can achieve an investment return of 7% above
inflation, you’ll have to save a bit less - around 25% of your salary.
And if you work until 70 instead of 65 and
earn a regular return of 7% above inflation, you’ll only have to save about 12%
of your salary.
Alternatively, you could
plan to retire on 50% of your current income instead of 70%, which is possible
if you’re debt-free and in good health.
need to make sure your investment choices are not too conservative. Equities
have outperformed all other asset classes over time and it is essential to
include them in your portfolio for real growth.
However, they also come with volatility, though this tends to smooth out
over the long term.
mention that you have a pension plan through your company and that you are
looking for an additional investment option.
When deciding which investment product best suits your needs, you need
to consider when you’ll need to access your investment, how it will be taxed
and what happens to it in the event of your death.
You also need to consider
fees. A retirement annuity fund (RA), a discretionary unit trust investment or
an endowment policy are all possible options.
biggest advantage of RAs is their tax-efficiency. Many RAs are offered with low
product fees and offer choice and flexibility.
You can stop and start
contributions without penalties, you can choose which underlying unit trusts to
invest in (as long as your selection complies with the asset allocation limits
for retirement funds prescribed by regulation), and switch between funds at no
However, you cannot usually access
your money until you turn 55. At retirement, a minimum of two-thirds of the
capital in your RA must be invested in a pension-providing vehicle.
policy, meanwhile, also has certain tax advantages and while you are not bound
by retirement fund regulations, withdrawals and additional contributions are
It can be a good medium- to long-term investment for higher income
earners with a high marginal tax rate. But your money will be tied up for a minimum of five years.
for you is to invest directly in unit trusts of your choice. Unit trusts are a
cost effective way to invest in a wide range of assets, such as shares, bonds
While you are allowed to access your money at any time, it’s best
to use unit trusts for medium- to long-term investment goals. If you go this route, you are not bound by
retirement fund regulations.
When it comes
to investment products, sometimes there may be multiple products that could
meet your needs.
If you are not comfortable making these decisions on your own,
or do not have the time to do so, it may be useful to engage the services of an
independent financial adviser.