DAVID FRANKLIN, © 2012 DAVID FRANKLIN
Given the low national savings rate and slow market growth locally and internationally, it should come as no surprise that National Treasury calculates that only about six percent of South Africans are on track to retire comfortably.

It is crucial to start saving towards your retirement as early as possible.

“While many of us look forward to the day we are able to retire, retirement is not always as easy as we imagine it to be,” says Fedgroup Life chief executive Walter van der Merwe.

“When you retire, you often suffer a loss or reduction of income but daily expenses remain and grow with yearly inflation and economic turmoil,” he says.

Van der Merwe says it is never too early to start making provision for retirement. To maintain your standard of living, a proper retirement plan will help to ensure sufficient income once permanent employment is no longer an option.

Van der Merwe says the general rule is that you should consistently save between 15 percent and 20 percent of your monthly salary between the ages of 20 and 60, to retire comfortably. An increasing number of retirement funds offer their employees variable contribution rates, from 5 to 20 percent of their annual salary.

A retirement annuity (RA) fund, to which you also make monthly contributions, is completely independent of your employer, allowing you to choose what funds you invest in (limited by retirement fund regulations).

At retirement, you are allowed to take a maximum of a third of your savings as a cash lump sum, and the balance must be used to purchase an income/annuity.

If you change jobs before retirement, this will not affect the savings in your RA. You are not permitted to access these funds before the age of 55.. 

PERSONAL FINANCE