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A 45 year old Fin24 user wants to start saving for retirement. He writes:
I am 45 years of age and I want to start saving for my retirement. What tips can you give me in order for me to build a reasonable nest-egg?
Wilfred Moyo, an investment and economic strategist at Metropolitan responds:
Unfortunately you are not the only one in this situation.
In general, many working South Africans have insufficient savings even though this is the time when they should be putting away enough money to be able to access at least 75% of their current income after retirement.
In his 2013 Budget Speech, the minister of finance emphasised the need for citizens to start and improve on their savings.
Government is trying to assist people by offering retail bonds and other tax incentives in order to encourage people to improve their savings.
The tips for you regarding saving for a rainy day, especially retirement, are:
There is no need to panic
Many people do not realise that they are in financial trouble until they are ten or fifteen years to retirement.
Realising that you don’t have any retirement savings is a step in the right direction.
After realising your predicament, do not panic and stop doing anything, because of the thought that it is too late to start saving. There is time, not much, but there is some time.
The way to make the most of the time there is left for you is to remain calm and think clearly and determine proper steps that need to be taken.
Try and broaden your knowledge by doing research either by reading relevant articles, or interacting with knowledgeable people in the field.
Determine how much you need during your retirement
You need to determine how much income you will need during retirement. Your financial adviser can use financial tools available to him to assist you in determining this figure.
Once this figure has been determined, you will need to calculate how much you need to save on a monthly basis in order to achieve your ultimate objective. Again, the financial adviser can assist you in determining the monthly savings amount.
Act
Once you have determined how much you need to be save on a monthly or annual basis, don’t delay. You will need to include this monthly amount into your budget.
This may prove to be a challenge, however, do not be discouraged. To save requires discipline, commitment and sacrifice.
To achieve your objective, focus on the end result, think of how much harder it would be if you don’t start.
For your plan to be a success you may need to consider working beyond the normal retirement age or you may need to run a business on the side.
Choose your investments wisely
It is dangerous to try and make up for lost time by seeking high yielding investments. High yielding investments are usually more volatile in the short-term and because of the short investment horizon you have, your fund may not be able to recover should it suffer loses.
Rather focus on a well-diversified investment portfolio with reasonable exposure to other asset classes for example, bonds, cash and property and aim for steady returns.
Understand the tax implications of your investments. How can tax-advantaged investments help you in reaching your goals?
Regular review of your position
Make sure that you evaluate the performance of your portfolio on an annual basis. Regular reviews will enable you to see whether your goals will be achieved or not.
It will also enable you to identify whether there is a need to make any adjustments or not. Remember that your investment is long-term focused, so try and avoid having a short-term focus when evaluating your portfolio.
- Fin24
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