By Brett Ladouce
As you welcome in a new, exciting, uncertain, (election?) year filled with new opportunities, it is good to take stock of your retirement saving process, as well as, the benefits offered by your retirement fund.
We owe it to ourselves and our loved ones to constantly keep our eyes on the retirement fund ball and to ensure that our retirement goals are aligned with the management and operations of the retirement fund that we belong to. There are six steps that you should take to ensure that you get the most out of your retirement fund in 2024:
- Update your nomination form.
It is important to ensure that the nomination form, that is in the possession of the trustees of your retirement fund reflects your current realities and wishes as this will guide the trustees in exercising their discretion when it comes to the allocation of death benefits if something should happen to you. If your nomination form is outdated, for example, if you had another child in the past year and you did not update your nomination form to reflect this child, the trustees of your fund might mistakenly exclude that child from receiving a portion of the death benefit if you should die. By the same token, an ex-spouse about whom you have no maintenance obligation might be included if that person still appears on your nomination form (to the frustration of your current spouse) even though it was not your intention that he or she should share in the fund benefit that becomes payable upon your death.
You should also consider including specific wishes that you have in your nomination form. For example, if it is your preference that the trustees should buy annuities for your loved ones instead of paying (taxable) lump-sum death benefits or if you want to indicate what should happen to the allocated portions of your nominees that die before you, then you should indicate to the trustees what you would like them to do if they are faced with these issues when they allocate death benefits.
- Review your life and disability cover.
It is always a clever idea to review your level of life and disability coverage once a year to ensure that you are adequately covered for these uncertain events. If possible, increase the level of life and disability cover under the fund-owned policy, as the premiums payable for additional cover under the fund-owned policy might be substantially less than the premiums you will pay if you take out additional life or disability insurance in terms of an individual policy.
- Revisit your retirement goals.
Calculate your current replacement ratio (the percentage of your current income that you will be able to replace at retirement based on your current and future fund contributions and investment growth in the fund until the date of retirement) and compare it to your desired replacement ratio. This will give you an indication that your current contribution level is adequate to achieve your retirement goals. If there is a substantial shortfall, you will either have to increase your contributions to the fund, change your investment strategy, or adjust your desired income after retirement.
- Review your fund contribution level.
Are you contributing at the highest level that you can afford, and that makes sense from a tax perspective? If not, you are undermining your ability to achieve the best possible retirement outcomes and missing out on South African Reserve Bank (Sars) “paying” R18 to R40 of every R100 that you contribute to your retirement fund as a result of the tax deductibility of your fund contributions of up to 27.5% of your taxable income (capped at R350 000 per year). On top of that, all investment income that you will earn on those contributions within the fund will be tax-free. The more fund contributions seeds that you plant, the higher the probability of you cultivating a strong retirement tree that will provide shade and fruit in your retirement years.
- Review your fund investment portfolio.
Increasing your fund contributions should go hand in hand with ensuring that the money is invested in the most appropriate investment option given your retirement goals and your risk appetite. You must take responsibility for understanding your fund investment options and how they can assist you in achieving your retirement goals. Abdicating your investment responsibility by taking a passive role regarding your fund investments and allowing your contributions to be allocated to an age-based fund default investment option that might or might not be aligned to your specific investment goals and risk appetite, can deter you from achieving the best possible retirement outcomes.
- Speak to your financial advisor.
A qualified financial advisor will play two important roles in your life, namely, to function as an independent soundboard that provides an objective opinion to evaluate your retirement plan and as the provider of specialist, expert advice who can assist you in drafting the best possible retirement plan. The objectivity that a financial advisor brings to the table can balance out the subjective fears or unrealistic expectations that you might have with objective, fact-based views. The superior knowledge that your financial advisor has about retirement planning should fill any knowledge and experience gaps that you might have. A combination of your wishes, fears, and wants and the knowledge and experience of your financial advisor might be the right recipe for a well-drafted retirement plan that will lead to the best possible retirement outcomes.
Make today the day that you put the right structures in place to ensure that you get the best out of your retirement fund in 2024 and to ensure the best retirement outcomes when you retire in the future.
* Ladouce is a pension funds lawyer and the author of the book, Pensions for Palookas.
PERSONAL FINANCE