Your retirement years are something to look forward to. This is the time to spend with your grandchildren, pursue your hobbies full-time, or follow whatever you find most fun and meaningful – at your own pace. But if you did not build up sufficient savings, this phase of your life could turn out to be highly stressful.
Postpone saving no longer
The sooner you start saving through your employer’s retirement fund or your private retirement annuity (RA) – or both – the better. It’s generally recommended that 20-somethings start saving 15% of their total income and continue to do so for at least 40 years to make sure they retire with enough. But if you start in your 30s or later, you would need to save a much larger percentage of your income every year to catch up.
Pay the taxman less
The less tax you pay, the more money you have left to save. But to qualify for tax relief you need to choose the right type of investment product. With products governed by retirement law, such as an RA or your employer’s retirement fund, you can now invest up to 27.5% of your annual income and enjoy tax relief on those contributions. Contributing more to your employer’s fund means that you’ll see an immediate reduction in the amount of tax that’s deducted from your monthly salary. With an RA, unless you have arranged with your employer to take your contributions into account with your monthly tax, you’ll have to wait until your tax return has been processed to see whether you’re due a refund from SARS. The best thing to do with that refund is to reinvest it, of course.
Preserve your money
When you move from one employer to another, you might be tempted to take all of your retirement savings as a cash payout, but remember the tax! Also, saving enough money for retirement is hard enough. Dipping into your savings at any stage could set you back significantly. The two most common tips that retirees have for younger generations are to start saving earlier and to preserve their savings every time they leave a job. (Read more about what to do with your pension when you change jobs here).
Professional help is a must
The closer you come to retirement, the more important it becomes to consult a professional financial planner. He or she will be able to calculate the exact figure that you need at your desired retirement age and how much you need to save every year to reach that magic number. Equally important is the sound advice that you’ll receive to help you navigate the tax laws covering retirement products – both before and after retirement. We recommend that you speak to a financial planner rather sooner than later.
Prolong your working years
By working longer you’re able to save more towards retirement, and it also means you’ll be living off your savings for a shorter period of time, enabling you to draw more retirement income every year. Postponing your retirement date is a great recipe for a more comfortable retirement.
Plan your post-retirement business
Because there’s no guarantee that your savings will be able to keep up with your living costs throughout retirement (especially if you enjoy extraordinary longevity), it’s a good idea to start working on a hobby now that could supplement your retirement income later. Starting a second or even a third career after the age of 60 is becoming more common and can re-energise you and refill your savings pot.
A financially carefree retirement is built through a sequence of sound decisions throughout your life. Start planning for the best time of your life now.
By Carl Roothman