By Janet Esterhuizen
With 30% of South Africans without retirement savings and many contending with retrenchments and rising debt, the picture looks bleak. Planning for retirement should ideally start with your first salary; however, it is never too late to start where you are. However, setting aside money for your retirement each month is not enough to ensure you meet your retirement needs. Just as life is ever-changing, your retirement plan should adjust as your age, income, needs and circumstances change. It therefore requires a more strategic approach, determined by your life stage.
The fact that retirement can feel quite abstract (planning decades ahead from your current reality) can make it hard to stick to a disciplined savings habit. But it’s critical to apply the principle of delayed gratification, and to recognise that there’s a trade-off between meeting all your needs and wants today and the quality of your future.
Retirement planning is about the long term – it stretches over decades, involves choosing from a range of investment vehicles, is affected by a range of factors outside of our control, and it is different for everyone. When you started saving, whether and to what extent you live above or below your means, your family set-up and support – all affect what an appropriate retirement plan may look like for you. Nevertheless, each life stage generally requires a certain strategy.
As a rule of thumb, here’s what do at each juncture:
In your 20s:
You should start putting away money for your retirement from your first salary, aiming to save between 10% and 20% of your monthly income.
In your 30s:
If you have started saving in your 20s, it is important to stick to your savings plan and make an upward adjustment to your contributions as your income increases. If you haven’t started saving yet/started saving recently, saving for your retirement should now be a priority. By re-evaluating your budget to see where you can cut down on expenses and/or if necessary, you can make changes to your lifestyle to free up money for your retirement.
In your 40s:
If you have been saving diligently since your 20s, the same principles apply. It is also advisable to watch your lifestyle – do not automatically adjust your lifestyle as your income increases as you move into more senior positions in your career.
In your 50s:
Start thinking about your retirement and what your expenses may look like. Keep in mind that some expenses will decrease (e.g. cost of commuting to work) while other expenses will increase (e.g. medical care).
In your 60s:
Don’t stop working if you don’t have to and are able to/want to work for longer. Research is showing a steady increase in life expectancy. So, the longer you can delay starting to live off your retirement savings the better. When you do retire, cash in the minimum that you need, so that your savings can continue to grow.
If you change jobs throughout your career do your best to not cash in your retirement savings. Transfer it to a preservation fund or your new employer’s retirement fund. Lastly, if you receive any extra income e.g. an annual bonus from your employer, get into the habit of adding as much as you can to your retirement savings.
Trying to go about retirement planning on your own will not only be time-consuming and stressful; it is also highly unlikely that you will reach your goal. An accredited financial advisor has the expertise and tools to help you determine exactly how much to save each month, where to invest your savings as well as cost- and tax-efficiency to guide you on the impact if something happens that affects your savings plan for optimal returns.
Janet Esterhuizen is the Provincial Head at Nedbank Financial Planning
PERSONAL FINANCE