By Claire Klassen
Retirement planning is one of the most important parts of your financial journey, but it is often neglected or postponed until close to retirement age.
Starting to plan for retirement is easier when you are still young, and you have few financial responsibilities. This is the right time to save as much as possible to accumulate higher interest allowing you to meet your financial needs during your retirement.
Under-saving for retirement remains an issue in South Africa; a new study found that only 12% of the 3.6 million people of retirement age received a form of income in 2020.
It also showed that more than 90% of retirees are unable to maintain their standard of living prior to retirement, and two-thirds of members have less than R50 000 in their retirement funds, according to the new survey by Genesis Analytics and the Financial Sector Conduct Authority.
Additionally, only 7 to 10 million South Africans out of an employed labour force of about 15 million have retirement savings.
Saving for retirement is a challenge in South Africa, but there is good news: it is never too late to start saving.
The first step in planning for your retirement
Managing your finances and finding a way to acquire wealth starts with tracking your spending and aiming to save three to six months’ worth of expenses in your savings bank account; this will start making your money work for you.
Once you understand that money is a tool for achieving your financial aspirations in life, you will start thinking differently about it.
There are several factors to consider when planning for retirement, including:
– your current income
– current expenses
– retirement savings
– investment strategies
– estimated cost of living in retirement.
Financial wellness begins with the recognition of any bad spending habits you have and replacing them with good spending or savings habits. This includes saving for your future and starting with a retirement plan in your twenties or thirties.
Starting young will help you stay on track to achieving financial wellness and feel more confident about preparing for your future. Remember that the older one gets, the higher the cost of medical care and as the years go by, the cost-of-living increases.
When preparing for retirement and the medical needs associated with the natural progression of life are neglected. This could lead to situations where, at an older age, you need to rely on family or the government for your basic needs.
The role of a financial adviser in your retirement
A financial adviser’s role is to help you to achieve your financial goals in life regardless of your current financial situation. They will conduct a financial needs analysis to assess your needs, your current lifestyle, and future financial and personal goals. This will give the adviser a comprehensive view of the tailored solution needed to help you to reach your goal, as well as whether you need additional financial products that will help you secure your lifestyle such as medical aid, life cover, short-term insurance, or investments.
A financial needs analysis will also allow your financial adviser to consider critical factors around retirement saving, including your current income, current expenses, retirement savings, investment strategies, and estimated cost of living in retirement.
You will then receive quotations to review and compare with your financial adviser, to decide on the type of product you need that is suitable for your needs.
Don’t feel rushed or pressured into choosing a financial product - it is important that you fully understand what you are signing up for, as it is your future after all.
Kick-starting your future with a proper financial plan can be a great way to ensure your success. A financial plan is a summary of all your short and long-term financial goals as well as the strategies developed to achieve them.
It will also detail the action steps you need to take, such as retirement planning, investment advice and management, budgeting, and education savings.
A financial plan also helps to identify risks, keep track of finances, and safeguard you against disruption. Working on your plan with a financial adviser can help to make the right financial decisions and reach your ultimate financial goal: robust retirement savings that will sustain your living expenses until death
The perfect time to begin your retirement planning is when you are between 20 and 30 years old, as the younger you are, the fewer financial responsibilities you have, allowing you to save more.
An important consequence of starting to save when you are younger is compound interest has more time to significantly increase your savings.
Legislation has allowed retirement savings to benefit from the factor of time, as access to your retirement savings is very limited, with only special circumstances giving you access.
By using your wits and a disciplined approach, you will be able to save and invest more money, enabling you to live comfortably post-retirement.
Claire Klassen, consumer financial education Specialist at Momentum Metropolitan.
* The views expressed here are not necessarily those of IOL or of title sites.
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