Following Minister Godongwana’s outline of Government’s refreshed financial plans in his 2023 Budget Speech earlier this year, it’s an ideal time for you to also review your personal financial plan and budget.
Whether the future you want involves watching sunsets in Mauritius, trekking across Kgalagadi or sponsoring a rural school, taking time out to review your goals and your personal budget is a valuable exercise that your older self will one day thank you for.
South Africans are resilient and we’re very good at accepting the things we cannot change. But we need to regularly remind ourselves of the many things we can make happen, or change, improve and strengthen.
Retirement planning is one of those things: an opportunity to bring about a positive outcome by taking decisive action. Making retirement planning a priority is the first step to securing your financial independence in the future.
Lizl Budhram, Head of Advice at Old Mutual, says the economic difficulties of the past few years certainly alerted South Africans to the importance of having an emergency savings plan, but it unfortunately didn't shift their escapist approach to retirement savings.
“The truth is that the vast majority (around 94%) of working South Africans aren't doing enough to ensure their retirement years will be care-free and comfortable,” she says.
It’s time to face retirement realities
The starkest reality is that over the roughly 40 years of your working life, the cost of an average basket of groceries is estimated to rise by a staggering 870%*.
Add to this the fact that you could live to your nineties thanks to medical advancements. If your retirement age is 65, this means you need to secure yourself a retirement income that will beat inflation and cover all your living costs and medical expenses for at least 25 years.
The good news is that partnering with an accredited financial adviser can make retirement planning a whole lot easier and more effective than tackling it alone.
How to make sure you will be retirement ready:
1. Commit fully to a sound financial plan
The sooner you start saving, the more your savings will grow over the years through the power of compound interest.
Aim to save enough during the course of your working life to be able to draw at least 60% of what you expect to be earning just before retirement. This is the rough equivalent of saving 15% of your monthly income for 40 years.
Be disciplined about your budget, and don’t be tempted to dip into your retirement savings or cash in your pension fund contributions when you change jobs. Rather discuss your needs and options with your financial adviser. It's not easy to resuscitate a retirement fund that has suffered large cash withdrawals.
It's a fact that it’s never too late to start or increase your savings. If you need to catch up for whatever reason, consider increasing the percentage you save monthly to as much as you can afford.
Spend time making sure your budget is really well structured. By improving your spending priorities and budget structure it's often possible to make retirement savings more affordable.
2. Get your whole family involved in growing your savings
Explain your priorities and action plan to your immediate family. Together draw up a monthly budget and explore ways of saving money and stretching your budget. Consider tracking your spending and managing your money with a helpful budgeting app like 22seven.
In addition to finding ways to spend less, discover ways to earn more. Be creative when considering side hustles. If cultivating succulents, herbs and vegetables isn't your thing, what about “flipping” furniture (giving old furniture a makeover). Or think of offering language, IT, art, music, dance or yoga lessons.
3. Be guided by the best
To enjoy peace of mind, make sure your financial adviser is backed by a financial services company with a sound reputation.
Accredited financial advisers can do a thorough financial needs analysis and help you draw up a workable personal financial plan and review it once a year or when your circumstances change.
This is the perfect time to boost your retirement savings. Most contributions to retirement funds are considered tax-deductible (up to a specified maximum). If you fall within the 45% maximum marginal tax rate, SARS is effectively sponsoring almost half of your contribution towards retirement.
No tax on interest income is imposed on retirement funds. This benefits you if you're a taxpayer and belong to a retirement fund. Your adviser will be able to advise you on other tax breaks and how to manage your finances in the most tax-efficient way.
Also consider asking your adviser about offerings such as the Old Mutual Max Investments Optimal Retirement Plan, which is designed to adapt to life's twists and turns. It’s possible to adjust your premium amount when you need to, boost your fund value after five years and add premium protection to keep your retirement plans on track. T&Cs apply.
To find out more:
- Speak to your financial adviser
- Visit Old Mutual's website to learn more about its retirement products.
*The cost of groceries is calculated on a limited basket of goods. The increase in costs is based on various factors including an expected future inflation of 5%. T&Cs apply.
Old Mutual Life Assurance Company (SA) Limited is a licensed FSP and Life Insurer.
The material is not intended as and does not constitute financial or any other advice. The material does not take your personal financial circumstances into account. For this reason, it is recommended that you speak to an accredited financial adviser to consider all your options and draw up a plan to achieve your financial goals.