Retirement Planning in South Africa

Saving for your retirement is not something that should be left for the last minute. In fact, Retirement Planning is not something that should be overlooked at all, or even indefinitely discarded.

  Retirement Planning - Start saving money early in life
Retirement Planning - Start saving money early in life
Need Retirement Planning
 Broker Directory News   See News on Retirement Planning:
•  How do I invest my Pension when I retire? (Mar 18, 2019)
•  Weighing in on tax-free savings accounts and retirement annuities (May 24, 2017)
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•  Are you prepared for Retirement? (June 01, 2017)
•  Tax benefits and Tax Free Savings: Retirees’ Income (May 04, 2017)
•  Tax efficient retirement savings (March 31, 2017)
Have your planned ahead for your retirement?
Have you planned ahead for your retirement?

Don’t procrastinate - Saving and planning for your retirement, doesn’t need to be scary or complicated.

The biggest barriers to Retirement Planning, beside the inevitable, unpredictable and uncontrollable changes in the investment environment, are people’s stubborn belief that they know better – including having a prevalent culture of immediate gratification and a tendency to procrastinate.

Unfortunately, many people do not view saving for retirement a priority. If you are still working today, you can use the power of compounding, smart planning and advice to get to where you need to be.  One of the best and most convenient ways to save for your retirement, is with Retirement Annuitities (RAs), which is a flexible and cost-effective retirement saving option. Retirement Annuitity (RAs) typically allow an investor to contribute on an ad hoc basis – often subject to minimum investment mounts and other criteria – or on a regular basis, e.g. via monthly debit order. Such contributions are tax deductible up to a limit, and the investment is sheltered from capital gains tax and dividends tax, thus significantly improving potential returns for the investor.

An Retirement Annuity (RA) is of particular importance, especially if your company does not offer a Provident or Pension Fund – and it remains an excellent way to grow your money to ensure a successful retirement. There are a number of long-term savings and investment vehicles available for retirement saving purposes, although RAs, company pension funds and provident funds are the most popular ones specially designed for this purpose.

But how can you ensure that you will have enough money come retirement? The standard answer to this question is that between 10% to 15% of your income should be saved for retirement while you are in your twenties. This, unfortunately, is not the case when you are that age – other things, products, services, luxuries – seem more important at the time. Therefore, by getting proper financial advice early in life, you should be able to calculate what income you will need at retirement – based on your retirement needs, financial situation and responsibilities. Factors such as price inflation, general increase in prices, the cost of living and a corresponding fall in the purchasing power of your money, should all be taken into consideration.

Planning for your retirement today, is not as scary or as complicated as misconceptions have made it appear. It is a relatively straight-forward process – and with Financial Advisors readily available, as well as a host of retirement vehicles, there should be no excuses to neglect the financial health of your future. A small sacrifice today, may mean the difference between having long-term financial stability on the one side, or having to rely on your family for your living expenses on the other.

There are no full proof methods of ensuring financial independence in retirement. However, to give yourself the best chance, you need to start as early as possible, create and action a custom-built plan with the help of an Accredited Financial Advisor, refine the plan as circumstances change and above all, keep focused on the end goal.

Being a specialist niche area, there are a number of retirement planning products available, where all available product options should be carefully considered. These options may be confusing...

In fact, the smartest thing you can do is -- Get a specialist broker to do it for you!


Also, note the following guidelines, tips and considerations applicable to Retirement Planning:

Take Note - 10 Big Pension Mistakes to Avoid:
  • Starting Too Late: When you are young you think that you have a lifetime to save for retirement, but before you know it retirement is around the corner. The sooner you start, the easier it is to reach your targets, because of the power of compound growth. You can save a smaller amount each month to get you to the same target over time.
  • Underestimating How Much Retirement Will Cost: It is important to have a budget so that you can see how much money you need each month.
    This will help you see how much income you need after retirement. Don’t think you will sit at home after retirement, so you only need food and electricity. Use today’s values in your calculations; inflation can be taken into account for projections. Once you know how much you need, you can calculate how much you should save to get that income.
  • Not Paying Off Debt Before Retirement: At retirement you are allowed to take all your money in cash from a provident fund and up to one third in cash from a pension fund. The first R500 000 you take in cash from all your retirement products is not taxed. If you have not paid off all your debts by the time you retire, you need to settle the debt from this cash portion. You might also not have enough cash available to pay all the debt and then you can lose that asset if your monthly income is not enough to pay off the debt monthly. The more debt you need to pay, the less you have to provide you an income. Most debt interest is higher than interest received on investments so don’t invest if you still have debt, with the exception of house and car debt.
  • Not Reviewing Your Investments: As your targets and situation change, so should your financial plan. You don’t have to check the value daily, but at least annually look at the statement and look to see if you are on target or not.
  • Thinking Your Employer Fund Savings Will Be Sufficient: In the majority of cases you need to save extra, especially if you started contributing later in life, or if you had a break in contributions. Prevent yourself from being part of the 90% of people in SA who will need help from either your family, the community, or the state. Most employer funds allow additional voluntary contributions, which are cheaper than saving in your own capacity.
  • Not Making Use of the Investment Structures Available: Each investment product has benefits and negatives - choose what best suit your needs. Retirement annuity contributions have tax benefits, but are not accessible before retirement. Unit trusts do not give you tax savings, but are accessible. A Tax Free Savings Account is accessible and has tax benefits on the growth, but will take a long time to show the benefits. By diversifying your savings, you can structure your income more tax effectively after retirement.
  • Cashing-In Savings Before Retirement: Don’t take your cash from your employer’s fund every time you change jobs. You will have to start your savings from scratch and will need to save more and more each time to get you to the same target. There is tax on the cash you take on withdrawal, which reduces your potential tax-free portion at retirement as well.
  • Not Knowing What Products are Available at Retirement: You can choose a fixed annuity, or a living annuity after retirement. A fixed annuity gives you a guaranteed income for life, but no capital is available to beneficiaries when you have passed away. In a living annuity you can leave a legacy, but you are responsible for looking after your investments and spending and you can easily run out of income after a few years. Choose your investment portfolios to match your product.
  • Investing in the Wrong Portfolios: Don’t be swayed by emotions - especially when markets are not performing well or there is a lot of uncertainty around. If you are saving for a long-term goal, don’t make decisions based on short-term volatility. Don't try to time the market. Don’t be too conservative over a long term because if you are afraid of volatility, you will not achieve your targets.
  • Getting Advice From Friends: You can get advice from your friends on what hairstyle to get, but would you ask them to cut your hair? So why take financial advice from someone who is not a professional? Financial legislation changes often and you could be basing your decisions on outdated information.
  Take your lifestyle and cost of living into consideration when planning for your retirement
Take your lifestyle and cost of living into consideration,
when planning for your retirement
  Don't procrastinate - Make it a priority and plan ahead for your retirement
Don't procrastinate - Make it a priority and plan ahead for your retirement
Calculate what income you will need at retirement
Calculate what income you will need at retirement
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