Publications
Partners
Very few people pay enough attention to their retirement planning. In the Retirement Reality Report 2022, an extensive survey by investment company 10X, 50% of respondents indicated they had no retirement plan.
The remaining 50% had some form of it.
Here are three common problems and how to deal with them.
1 HOW MUCH SHOULD I SAVE?
The first step is to determine how much money you’ll need when you retire to cover your expenses for another 20 to 30 years.
The rule of thumb when you start working is that you should save at least 17% of your salary for 40 years to reach a pension amount equivalent to your salary just before you retire.
Many investment websites have online retirement calculators (see Get More Advice below) which can give you a rough idea of how much you need.
A financial planner specialising in retirement will be able to calculate the amount more accurately.
They’ll consider your personal circumstances (for example your dependents, age and income), how much you’re able to save.
Independent financial planners aren’t beholden to a particular company and can give you examples of various companies’ products.
You pay a consultation fee for the planner’s advice and time and they don’t necessarily earn commission from the type of investment you choose.
If you’re already contributing to a retirement annuity or pension fund, make sure you’re contributing enough. You should receive a benefit statement at least once a year.
Retirement funds also have websites and call centres where you can check this information at any time.
If you’re struggling to boost your retirement funds, consider scaling down your lifestyle to have more money available to save.
Also consider additional sources of income or extra work to build your retirement nest egg.
2 REMEMBER YOUR MEDICAL EXPENSES
Older people generally get ill more easily, suffering from hearing loss, cataracts, osteoarthritis, lung disease, diabetes, and dementia.
As you age, your chances of experiencing several conditions simultaneously become greater. Your medical inflation also increases up to 5% more annually than ordinary inflation.
So the sooner you make it part of your retirement savings plan, the better as it means your savings have more time to grow.
A retirement annuity and dread disease cover could also be considered part of your health expenses during retirement, says Farzana Botha, segment solution manager at Sanlam Savings.
Both must form part of your bigger financial picture. With dread disease cover you’re covered against serious diseases such as cancer which can have major financial implications.
Retirement annuities can be used during retirement for medical expenses and to pay for policies such as dread disease cover.
3 WHAT IF I STILL HAVE DEBT?
If you don’t payoff all your debt before you retire it’ll take a hefty monthly bite out of your retirement funds.
Ask a debt counsellor (they give advice without you going into debt counselling) or a financial planner to draw up a plan to sort out your debt burden.
Debt to watch out for:
- Your children’s studies
Remember that you can’t borrow money for retirement or get a pensioner’s bursary – but your child can apply for a study loan or bursary.
They also have time to pay it off, which you don’t have.
- Your home loan
Find out what your bond term is, for example it could be 20 or 30 years. You might still have a few more years’ payment left when you retire, so try to increase your monthly payment to pay it off sooner.
- Credit card debt
The interest rate on credit cards and store cards is extremely steep. It’s easily 20% or more, which means you pay R10 for every R50 you borrow.
Don’t make early withdrawals from your retirement fund to settle debt. You’ll be losing the growth on your investment which can seldom be caught up with again.
WHAT IF YOU WON’T HAVE ENOUGH?
More than 70% of respondents in the 10X survey say they’ll need another source of income once they’ve retired. If you don’t have enough retirement provision, try to retire later.
This will help you to save more and the period for which you’ll be dependent on retirement funds becomes shorter.
Even if you can’t stay on in your current job, see for example if your skills can still be used in part-time work, freelancing or as a consultant.
GET MORE ADVICE
- Retirement calculators on the websites of 10X and Sanlam
- Institute for Financial Planners: fpi.co.za
- Financial Intermediaries Association of Southern Africa: fia.org.za
