We find ourselves in a market that hasn’t shown any real growth over the past five years. Even the most optimistic investors are now starting to panic, especially those who have already retired. With the cost of living rising rapidly, many pensioners are forced to increase their withdrawal rates to well above the recommended levels, in an environment that just hasn’t provided sufficient growth to sustain such high withdrawal rates these past few years.
Aside from feedback from the retirees I work with daily, enough research has been done over the years to determine what retirees would have done differently, had they been given the opportunity to start over. It will come as no surprise that most of them claimed that, given a second chance, they would have saved more and would have obtained proper advice well before retirement.
Despite these observations, however, I still get the impression that the South African public does not realise how important it is to save as much as possible prior to retirement – not even given the opportunity to learn from the mistakes of others. I hear too many excuses about how the cost of living doesn’t allow people to save a single cent. I do agree that these costs are on the rise, but it doesn’t really help that many of these people are also living well above their means.
My message in this edition is aimed at those individuals who are currently living above their means, even though they won’t like to admit it. It’s one of the biggest reasons why South Africans are struggling to save.
The maximum allowable government pension grant currently is R1 780 per month if you are older than 60 years or R1?800 if you are aged 75 or older. I often ask this question: Will that be enough to cover your expenses and cost of living? If so, you have nothing to worry about. The rest of us, however, have no choice but to find a way to save as much as we can. Here are a few pointers to help you save when times are tough.
Control your expenses
Many individuals who find it difficult to make ends meet with their current income take on extra work to earn an additional income. Interestingly enough, though, these individuals still struggle to save, even with a higher income.
The key is to check exactly what you are spending your money on. Do this by drafting a strict budget to monitor your expenses. Once you know what you’re spending your money on, you can control your expenses.
You need to buy cheaper and smarter. If you cannot afford a particular satellite TV package, downgrade or cancel your subscription. Also, avoid any additional debts that may obstruct your road to financial freedom.
‘Trick’ yourself into saving
As a child, I had a piggy bank and every day I forced myself to empty the change pocket of my wallet into my piggy bank. What made this savings strategy so successful was the fact that even though it wasn’t much, I didn’t spend it. I “tricked” myself into thinking that I had less money in my pocket, and therefore had less to spend.
The modern “piggy bank” can take on the form of an investment vehicle, such as a fixed deposit, unit trust or an endowment. Set up a debit order to withdraw money from your bank account into this investment every month (and as close to pay day as you can).
I do understand that if you’re finding it tough to make ends meet with your current income, investing money you don’t really have won’t solve a thing, but the point is that if you have less money in your “pocket”, you will be forced to spend less.
Claim your taxes
So many people make the mistake of overlooking the tax benefits offered by some products. Make sure that if you invest in a retirement product such as a retirement annuity, you include those certificates with your tax submissions every year. You can deduct up to 27.5% (up to a maximum of R350 000) of the greater of your taxable income or remuneration per year by saving in a retirement product. Also, use any tax returns paid back to you to contribute to your savings, whether it comes from your retirement annuity or unpaid medical claims.
I am well aware of the fact that it isn’t easy to save under current conditions, but I also know that most people won’t be able to survive comfortably with an income of only R1 780 per month. Learn from the mistakes of those who came before you. Don’t give away your power by living above your means. Ensure a more comfortable and financially sound retirement by challenging yourself to save as much as possible.
Schalk Louw is a portfolio manager at PSG Wealth.