Statistics show that most South Africans are severely under-funded when it comes to retirement savings. Such findings indicate that only 30% of retirement fund members think they will have enough money to live on when they retire, while more than 80% of members indicated that retirement savings are the most important need for them rather than short-term death and disability benefits.
As a teacher, with more or less 25 years of pensionable service, one might retire with a reasonable pension. But the question remains: how much is enough for retirement and for one’s specific financial or lifestyle needs?
Teachers should ask whether they can rely solely on the Government Employees’ Pension Fund or whether they owe it to themselves to make supplementary retirement provision? Consider the following: even with 20 years of pensionable service, you will only be able to retire on about 36% of your final salary. Can you afford a drop of more or less 60% in your salary?
The good news is that one can make additional provision for one’s retirement. Today people are living longer and experiencing a better quality of life in terms of health, which gives one even more time to save for one’s retirement. A man aged 65 can expect to live another 16 years in retirement and a woman of the same age, about 19 years. If, for example, you can afford to invest R1 000 a month, assuming you earn an annual return of 10%, in 20 years you could supplement your retirement capital with about R720 000.
The first step is to get your retirement plan on track and to think about what kind of retirement you want. Do you want to work in your retirement years? Where will you live? How will these decisions affect your financial planning? Once you have a notion of the lifestyle you would like at retirement, you can start to figure out what it is going to cost.
Your next step is to contact an accredited financial adviser who will analyse your needs and calculate how much additional money you will need to save to reach your retirement goal.
A retirement annuity is an attractive investment vehicle for the build-up of retirement savings because it is versatile and tax efficient. It is similar to savings vehicles, but differs in terms of its structure, mainly for tax purposes, to encourage saving for retirement.
This policy will assist you to save during your working years to provide you with funds when you retire – in the form of a steady monthly income – and will ensure that you have extra money to help you afford the lifestyle you deserve after all those years of hard work.
Your next step is to commit to a savings plan and to start clearing your debt. You can set aside a debit order facility for saving and to pay back debt. A great way of saving is to reduce your living costs and to ensure that you pay off your debt. If you want to start saving or increasing your savings for your retirement years, you need to be realistic in terms of what you can afford.
You might want to consider working for longer, which will mean that you might want to extend your retirement age from 55 to 65 to give you an extended period to save.
Avoid the following to ensure you don’t get into trouble:
Ignoring the problem: it is not the end of the world if you have not started saving for your retirement, but ignoring the problem is not wise;
High risk: remember to weigh up all the risk factors. Your age plays against you in terms of the time you have to smooth out any market volatility. If you are close to retirement you don’t have many years of earning an income, which means you cannot replenish losses you might incur as a result of a high-risk investment;
Quick-fix schemes: be wary of schemes that offer unusually high returns. Check the investment with the Financial Services Board;
Bad investments: you are taking a great risk by not seeking proper advice from an accredited financial adviser;
Living beyond your means: over-spending – not budgeting or planning properly – has detrimental effects and will result in you having no additional funds to save on a monthly basis for retirement.
Don’t delay the process of saving for your retirement. The sooner you start investing, the more time your policy has to grow.
Japie Mostert is the national manager of Metropolitan Life’s group schemes