Cape Town - With the pace of life growing ever more frenetic, planning has become an essential survival tool for today’s upwardly mobile generation. Yet while many of us tend to plan our lives well in advance, diarising key dates and social occasions with military precision, we tend to overlook one key priority, financial planning, says Johan Lotz, advisory partner at The Wealth Corporation.
For the vast majority of South Africans, saving and budgeting remains a perennial backburner item, something to deal with at some unspecified point in the future.
However, the New Year, for most of us, starts with an excitement that is combined with goals to achieve, and planning for your retirement should be one of them. Making disciplined contributions is the key to success – and may be the most significant factor for the health of your retirement account.
Here are some key tips to consider when planning your retirement:
Start saving for retirement as early as possible
Ideally, plans for retirement should be implemented as soon as you start working. The longer you wait to start planning, the larger the amount you will need to save each month, and the harder it will be for you to save the required amount.
The power of compound interest should not be underestimated – even modest returns can generate real wealth given enough time and dedication.
Accept risk to achieve investment objectives
There is a trade off between risk and return. Higher risk is associated with greater probability of higher returns.
Avoiding risk altogether can, in itself, be a danger. Making money through investments requires you to consider the various kinds of risk, and to find a balance to manage that risk.
Save enough for your retirement while still working, and avoid enjoying too much of your current income in an affluent lifestyle.
Control spending so that your lifestyle lags behind your income – this will create capital for your retirement investment, and will translate to a more comfortable retirement.
Put together a retirement plan
Retirement will be more enjoyable if your income is structured to fit your retirement. A certified financial planner will be able to assist with your planning, and will be able to offer expertise and insight that you may not have.
A financial planner has the time, knowledge and research skills and will evaluate your investments on a regular basis to determine if they are still appropriate for meeting your goals.
Make use of tax-free investments as part of your financial plan. There are increased benefits for people retiring from a pension fund, provident fund or retirement annuities.
As of March 1 2015, the first R500 000 of your lump sum will be tax free, if it has not beenused before. The remainder of your lump sum (one-third for pension funds) will also be tax efficient.
The discipline lies with each and every individual to be serious about their retirement planning.
A good financial plan, active management of your assets, combined with annual reviews with your financial adviser will result in carefree retirement.
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