Six steps to reaching your retirement destination

2017-11-16 06:00

By Juggie Govender of East Coast Financial Services (Pty) Ltd – FSP 44760

THERE is a well-known saying that “life is about the journey, not the destination”.

How much do you need to retire comfortably? How do you know if you are on the right track?

Ideally your retirement income should be 75% to 80% of your last year’s salary that you should aim to provide for in retirement. The truth is, however, that that figure can be influenced by so many variables that it can make the calculation of the actual amount you will need one of the more complicated tasks to tackle. Although that figure may be your “destination”, determining where you are in the “journey” to retirement is even more important. If you are close to retirement you should have the following six points firmly in place:

• DEBT-FREE

When you are ready for retirement, you ultimately should also like to be debt-free. At this stage of your life hopefully you would have paid off your bond and other debits.

EMERGENCY FUND

So, now you are debt-free, but what do you do when you suddenly experience a massive financial setback? Unfortunately, the sad fact is that many individuals will return to their old ways and make new debt. To avoid this, it is advisable that you set aside at least six months’ worth of net income in a savings account as a safety net for possible unforeseen expenses or life events.

• MAXIMUM RETIREMENT CONTRIBUTIONS

The current maximum cumulative tax deduction on retirement funds (like a retirement annuity) is 27.5% of your taxable income if you are self employed, or an annual maximum of R350 000. If you belong to a pension fund then you are allowed a maximum of 27.5% including your employer and your contribution to this fund. This remains one of the most tax-efficient ways to save for your retirement. If you are in the privileged financial position to already contribute the maximum towards your retirement investments, you are definitely taking a huge step in the right direction towards your retirement destination.

• DIVERSIFIED PORTFOLIO

Although it is always important to ensure that your portfolio is properly diversified across the different asset classes, it becomes even more important as you get older, simply because your needs and risk profile may change. Be sure to consult your financial adviser at least once a year to determine whether your investment goals are still in line with your risk profile and portfolio composition.

• PERSONAL NET VALUE

Make a list of all your assets and liabilities to “measure” exactly how much you are worth in financial terms. As a rule of thumb, it is recommended that you should have roughly 12 times your annual income saved in assets/investments (some argue this figure should be as high as 17 times, given a low-growth environment). The most important factor, however, is to evaluate this on a regular basis to ensure that this figure is still sufficient.

• SETTING ASIDE MONIES FOR HOLIDAYS

Reward yourself along the way with interim rewards like a nice holiday when you’ve reached certain goals. We all have only one journey, so make sure that yours is enjoyable and successful.

Remember that the journey to retirement won’t always be an easy one. It will come with its fair share of sacrifices, but the destination will be worth it in the end.

This article is an excerpt from Schalk Louw who is a portfolio manager at PSG Wealth.

You could contact me on 083 399 3905, my office on 032-944 3051/ 073 873 6927 or e-mail me on juggieg@telkomsa.net for an appointment to discuss the above or further advice on any other financial matter.

Disclaimer

The information is only intended to be of a general nature and should not be relied upon by any part without obtaining full details from a licensed financial service provider.

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