Are you too old or too young to start a retirement fund? Our money experts weigh in

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Planning for retirement (PHOTO: Getty Images)
Planning for retirement (PHOTO: Getty Images)

Planning for your retirement is one of the most important things you can do for your future. If you fail to prepare yourself financially, retirement can be somewhat depressing to you and your family. Some people mistakenly believe it’s not important, but don’t get caught short. Our experts weigh in on why retirement planning is important and necessary.

According to survey data done by financial services group, Sanlam, representatives of umbrella funds, which include retirement funds of many employers in SA, estimate that on average only 18 % of their retirees would be able to maintain their current standards of living in retirement.

DRUM spoke to Tandisizwe Mahlutshana of PPS investment on the common misconceptions around retirement planning.

“Firstly, many people in their twenties think they’re too young to start saving for retirement. But in the long term, waiting a few years can make a big difference. If you put away R1 000 a month at the age of 25 and your savings earn 12 % interest, you’ll have saved about R5,96 million for your retirement by age 55. But if you start five years later, your savings at the age 55 would be worth only R3,07 million”, he says.

Read more: Your five-year plan: how to plan your retirement effectively

“You might think you can sell your home one day and finance your retirement with the proceeds. But you won’t be able to invest all the money you get for your property to give you a monthly income. You will still need a place to live, which you’ll prob ably have to buy or rent, and this can quickly deplete your savings. But if you have a second property to rent out, this could provide extra income during retirement”, Tandisizwe says.

People often think their everyday expenses will be much less when they’re old, but Sanlam’s Benchmark study shows 48 % of retired people’s expenses are much more than their incomes. Medical and healthcare expenses in particular are likely to be much higher. People like to maintain their lifestyles and do things such as travel, which they didn’t have time for before, but it all costs money.

Jeanette Marais of Allan Gray added that one of the biggest mistakes you can make is to invest too conservatively for your retirement. “Conservative investments are things like cash in money market funds. Your portfolio should ideally include a sizable portion of investments in shares”.  “These investments outperform other asset classes in the long term. Jeanette says a balanced fund is generally a good option because your money would be spread across various asset classes. Up to 75 % can be invested in shares”, she says.

Read more: What is the difference between saving and investing?

Here are some frequently asked questions about retrenchments:

1.       Do I save enough through my job? A maximum  of 27,5 % of retirement fund members’ salaries  can be saved for retirement, but in 2016 the average contribution of employers and members was only 15,92 %  in total.

2.       Who should I ask for advice? Your standard of living during retirement depends on how you plan for it now. Get professional advice from a qualified adviser who can analyse your needs and devise a tailor-made plan especially for you.

3.       Am I too old? You’re never too old to start saving; better now than never. Save as much as you can for your retirement. Scale down on spending and save money. If you’ve reached retirement age with your employer, look around for other work so you can keep earning for as long as you can.

4.       What about tax? Remember, you’ll still have to pay tax after retirement. Ask an adviser how you can structure your finances in the most tax-efficient way.

5.       How does divorce impact retirement savings?  A person who’s not a member of a retirement fund is legally entitled to a portion of their spouse’s retirement money. The amount set in the divorce order is payable immediately.

Read more: 4 reasons why cashing out your retirement fund when changing jobs is a bad idea

It’s also important to remember that If you change jobs, don’t take any cash out of your retirement fund. Not only will you be taxed heavily on it, you’ll also have to start saving again.

If you’d still like to find out more information, visit the Financial Services Board website or to speak to a financial adviser, click here.  

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