Key to retirement savings – start early and never stop

The importance of saving for your retirement can’t be over-emphasised. When you no longer have a monthly pay cheque to cover expenses, life can get extremely uncomfortable. Especially if you need professional care as you age.

Around 90% of South Africans of retirement age can’t afford to retire. They have to rely on family members for survival, and this can place a heavy burden on grown up children who are bringing up children of their own, as well as emotional and physical strain on themselves.

Even if you can’t afford to put away much each month, at least save something. Because, when it comes to savings, compound interest is your strongest ally. Simply put, it means you earn interest on your interest. If you invest a lump sum in a saving account that pays 7% interest, you would literally double your money just over 10 years. And if a parent or grandparent opened a savings account for you when you were born, and put just R200 into it every month, you could have around R250 000 before you even start work!

Although starting early is the best way to reach your retirement savings goal, it’s never too late to start saving. Don’t simply give up because you’ve left it a bit late in the day. Every rand you save now will help make your retirement more comfortable.

Savings pitfalls to avoid

When you change jobs, resist the temptation to spend your pension or provident fund payout on a new home, car or overseas holiday. Because it’s almost impossible to replace those savings. Tempting as it may be to splurge out, the sensible thing to do is to transfer pension savings to a Retirement Annuity, and keep adding to it if possible.

Why a Retirement Annuity?

If you buy a Retirement Annuity, you won’t be taxed on the interest you make on your investment.  Instead, the amount you would have paid in tax is reinvested, resulting in bigger savings. And any additional contributions you make are tax deductible as well, up to a certain limit.

More about tax friendly retirement savings.

Since a Retirement Annuity is not linked to your employer, when you change jobs you can carry on saving. In fact, you are not allowed to withdraw money from a Retirement Annuity unless the invested amount is less than R15 000 or you become permanently disabled. Only once you reach the age of 55 are you allowed to access one-third of your savings as a lump sum. The rest must be used to provide a living annuity or guaranteed life annuity to provide a retirement income.

Retirement goals

Around 90% of South Africans of retirement age can’t afford to retire. To avoid finding yourself in this unfortunate position, there are some steps you can take now to help improve your situation.

  • If your employer and your health will allow you to do so, carry on working past your planned retirement age. Just a few more years of saving can make a big difference to your retirement income.
  • If you aren’t allowed to stay on at your company past retirement age (or you don’t want to), consider starting your own ‘side hustle’ doing something you enjoy that can bring in extra cash.
  • If possible, pay off your car, mortgage loan and credit card debts before you retire. Look at ways of cutting back on your expenses – for example holidays and meals out – and putting the money you save into your retirement savings.
  • Be realistic about what you can afford. You may desperately want to give your daughter that dream wedding … or visit family overseas. Or just buy that designer handbag that you can’t really afford. But it’s not worth getting into debt in order to make these dreams come true. Learn to live within your means.
  • Consider moving to a more affordable home or trading in your car for something more compact and cheaper to run.
  • Seek financial advice. Difficult to do when you already feel like you can’t afford to spend money on non-essentials. But proper financial advice is essential. A good financial advisor can help you draw up a proper budget, point out where savings can be made, and put you on the path to a more secure future.

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