Investing a portion of your monthly income towards a retirement goal is vital and, with it, the diligence to maintain this contribution over the long haul. This forms part of South Africa's broader savings challenge, and while government is hard at work to create an environment that will ease this burden, personal participation will remain an important contributing factor, especially so for salaried individuals.
The economy's effect on retirement savings
Financial advisors nurture clients in how to develop a retirement savings strategy that doesn't just pinpoint an ideal monthly income upon retirement, but takes into account unanticipated needs, identified through decades of close market trends studies. Examples of often-overlooked issues include savings for critical medical care, and taking account of inflation and currency volatility.
The escalating costs of medical care, coupled with the strength of the rand pushing interest rates down for an extended period over the last decade, disproportionately affected the monthly income of South African retirees. An Alexander Forbes study showed that retirees, who in 2001 would have received a pension equal to 75% of their final pay cheque, only received 41% of that amount ten years later, in no small part due to lower interest rates. In a low interest environment, more than 20% of income should actually be saved to earn 75% on a final paycheck.
In a high interest environment, such as South Africa is in now and for the foreseeable future, associated living cost pressures - higher bond repayments, food and often fuel costs - pose a fitness challenge for clients wanting to save.
Philosophy of saving for retirement
All things being fair, while interest rate shifts affect the return on retirement investments and thus require a prudent financial advisory partner along the way, these shifts do not affect the ability to save. Globally, the challenge remains for a mindset shift from living for today only, to planning for financial fitness beyond personal productivity.
These tips assist our clients when considering, and regularly adapting, their retirement strategies:
- Keep your options open - consider diversifying your investments to reduce risk. This ability depends on a variety of factors, including your risk appetite - however, broadening your current investment portfolio may very well increase your returns to build a solid golden egg. Depending on your lifestyle needs, it is a risk to solely rely on your employer's retirement fund. It is a good idea to supplement it with another fund.
- Re-assess, re-assess, re-assess! During your working years, it is important to ensure that your annual income increases reflects back into your retirement savings. The fund that you have during retirement age will be impacted by macro-economic issues, so remain realistic about your retirement savings.
- Keep watch over your financial portfolio - even though a broker may be overseeing your fund, always keep check of your retirement savings to see that you are constantly seeing good and healthy returns.
- Saving never ends - retirement should not be an excuse to discontinue savings, in fact saving every penny is just as important in your golden years.
By conclusion, it is daunting that 94% of South Africans retire unable to take care of themselves financially. Being savvy about financial planning for retirement during your productive years inevitably contributes to living comfortably during their golden years.
Issued on behalf of:
Nosisa Buthelezi
Nedbank Group Communications
Tel: +27 11 295 5372
Cell: +27 72 241 2660
email: az.oc.knabdeN@BasisoN
