Retirement Savings: Best Practices

Have you thought about how you’ll afford to live once you’ve retired? The South African National Tax Registry estimates that only 6% of the country’s population is able to retire without changing their standard of living. This means that nine in 10 people are forced to live on less when they leave their places of employment for good. If you don’t want to be one of them, it’s time to get saving. Here’s how.

Start today

No matter where you’re at – in terms of age or income – it’s never too early or too late to start putting money aside for your retirement. Of course, the sooner you start, and the smarter you invest, the more money you’ll have when your workdays are over. If you’re feeling anxious that you’re starting a bit late, don’t panic. More than half of us only start saving at 28, and many only get going in their 30s or 40s. The most important thing is that you start – and stick to it.

Determine how much you’ll need

This calculation can be pretty tricky. In South Africa, a general guideline is that you’ll need at least 75% of your current income to retire comfortably (assuming that you won’t have any significant debt by the time you’re 65). However, it’s a good idea to estimate as much as 90%, since your medical expenses might be higher when you’re older.

So how will you achieve this? Try to save approximately 15% of your salary for 40 years, or, if you don’t quite have 40 working years left, a little bit more to make up for lost time.

Pick a fund that suits your needs

Saving for retirement can take several forms: pensions, provident funds, retirement annuities and preservation funds are all governed by the Pension Funds Act, but they serve different purposes. In most cases a retirement annuity, or RA, is considered one of the best routes to take, in addition to any plan that your employer may offer to you. An RA includes investments in shares, property, bonds and cash, can only be accessed when you turn 55 (which is a blessing for most of us) and has several tax advantages.

Don’t touch it when you change jobs

When you think of the money you’re putting away for retirement, don’t think of it as belonging to you yet. It belongs to a future you. This means that if you get a payout because you change jobs, simply move it straight into your next retirement vehicle without giving it a second glance.

While life always seems to have urgent financial demands – weddings, new homes, school fees or other debts that need to be paid – you can’t prepare for your retirement overnight, as it’s a long-term process. If you’re uncertain about how to begin, chat to your bank or a financial advisor who will guide you on the best way forward.


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