Want a happy retirement? Start saving now!

15 Feb 2017
Despite alarming statistics showing that South Africans are not preparing adequately for retirement, many individuals are still not heeding the call to take steps to better their financial situation. The most recent Old Mutual Savings and Investment Monitor revealed that in 2016, 77% of respondents reported being constantly worried about not having enough money, yet only 69% of respondents set financial goals (down from 78% the previous year).

Mayur Lodhia, Head of Retail Savings Old Mutual, says that the Monitor also showed that the likelihood of South Africans saving enough to retire comfortably is declining year-on-year. “About 49% of South Africans are saving less than they were a year ago. And even more concerning is that only a fifth (20%) of respondents between the ages of 18 and 30 are saving for retirement.”

Lodhia explains that retirement planning remains low on South Africans’ list of priorities, possibly because we make ourselves believe that time will be on our side and we can leave it for another day. “For many of us, reaching retirement feels like something that will only happen in the distant future, but this isn’t the case and time is actually one of the very few certainties.

“Reaching a comfortable retirement takes sensible planning and years of persistence. Saving for retirement can be compared to growing a tree – the best time to save for your old age was twenty years ago, however, with the right advice the second best time is now.”

He explains four actions South Africans need to take:

1. Know how much you need to contribute to your retirement savings today to retire comfortably tomorrow

Although the answer to the big question ‘How much is enough?’ obviously depends on your individual personal circumstances and goals, there are some universal guidelines to follow:

  • Save enough to ensure that your retirement savings can provide an income during your retirement years that is between 70% and 75% of your final salary before retiring. This is known as the retirement replacement ratio.
  • If you are at the start of your career, this means you need to save at least 15% of your income on a continuous basis (assuming average returns from a Balanced Fund).
  • If, however, you have little or no retirement savings by age 45, and still want to retire by 65, you need to contribute at least 27% of your monthly income. This should give you a retirement replacement ratio of around 50%.
  • The earlier you start saving, the less you need to contribute each month, so the trick is to start contributing to retirement savings as soon as you can.

2. Maximise the tax breaks offered by retirement funds

Yes, death and taxes may be the only certainties in life, so you will be smart if you understand tax breaks and increase your retirement contributions to maximise the amount you can contribute tax free. With the introduction of the Tax Law Amendment Act last year, contributions to all retirement savings vehicles are now tax deductible up to 27.5% of the highest of either your taxable income or total remuneration, up to a maximum of R350 000 per tax year.

The growth on retirement investments are also free of tax on interest, dividends and capital gains – which not only results in significant tax savings but also assists in compounding the potential growth.

3. Cut back on unnecessary spending

If you are prone to impulse buys, try to consciously change your spending habits. The more money you save instead of spending, the better your retirement outlook. For example, instead of buying a daily coffee at R25, have a cup of coffee at home or in the office. This alone can save R500 a month, and R6000 a year. By investing this extra sum into your retirement savings, the fund value achieved can reach R276 600 after 15 years, and R1 045 900 after 25 years, assuming an average return of inflation plus 4.5% pa and that the price of coffee increases in line with inflation.

4. Speak to an accredited financial adviser… today’s the day!

As you pass through the different stages of life, your financial needs will change too. A professional financial adviser can provide invaluable guidance and develop a customised financial plan aimed at achieving your specific financial goals. An adviser will also help adjust your financial plan as your circumstances change to ensure your retirement goals stay on track.

“We believe great advice understands who you are, where you’ve come from and where you want to be. It knows that what you need today might change tomorrow and it puts you in charge of your financial future. Our experience has also taught us that greatness comes to those who act. Don’t let now become later. Today’s the day. Get time on your side, and get great financial advice today,” concludes Lodhia.