Burying your head in the sand and hoping for the best is definitely not a solid retirement funding strategy, according to Janine Horn, financial adviser at Momentum.
Belinda Sullivan, head of corporate consulting strategy at Alexander Forbes, said that many people do not retire with enough retirement savings, and with medical advances people are living longer, saving more for your retirement is more important.
“People need to start saving for retirement as early as possible in their lives. The earlier the better,” Horn said.
Sullivan suggests four ways to help you win at saving for retirement.
1. Additional voluntary contributions
People have the the flexibility to decide how much extra to contribute towards their retirement savings. They can contribute a lump sum whenever you have extra money and there are no administration fees charged for putting extra money into your fund, so the full amount is invested for your retirement.
2. Increase your contribution rate
Sullivan said that contributions to your fund are deducted from your salary before tax.
If people contribute an extra 5%, then their take-home pay will not decrease by 5% because they will pay less tax on the reduced, pre-tax income and more money is invested towards their retirement savings.
Sullivan said: “As a simple example, if your total monthly income is R25 000, and you contribute 15% – that is R3 750 – to your retirement, your taxable income is R21 250.
“However, if you increased your contribution to 27.5% – that is R6 875 – your taxable income would be R18 125. Your fund may offer you the option to increase your contribution rate. Ask your HR department about your contribution rates.”
3. Sign up for a new retirement annuity
According to Sullivan, people can top up their retirement savings with a retirement annuity. A retirement annuity has its benefits including tax incentives, flexible contribution rates, and they are separate from employment-related savings.
“Most annuities have a minimum investment amount to get started. You may need to save up, or wait until you receive a bonus or if you receive money back from Sars (SA Revenue Service) when you submit your tax return,” Sullivan said.
4. Draw up a budget
If you think you don’t have any extra money to put towards your retirement savings, then draw up a budget to take a look at your finances to see where you can save money.
“Cancelling subscription services you are not using, or getting new quotes on your insurance can help you find a few extra hundred rand, which could be used in a tax free savings account,” Sullivan said.
Horn advises people to speak to a financial adviser to assist them with formulating and reaching realistic retirement goals.
“A financial adviser can assist you with consolidating your debt; creating savings goals and managing your retirement portfolio,” Horn said.
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