RETIREMENT

Retiring comfortably

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We all want to retire comfortably. That means we need to ensure we have a sustainable income to last us through to our final days.

According to the latest Old Mutual Retirement Monitor, 85% of respondents felt that not having enough money to retire was their greatest retirement concern – and 39% of senior citizens reckon they will probably have to work after retirement age to be able to save enough.

“There are still far too many South Africans who will find themselves out of pocket long before they die,” says Rosie Wilson, market development manager at Old Mutual. “This is because they either start too late, just aren’t saving enough or are using the wrong vehicles in which to save.”

We are living longer, and economic factors such as the rising price of electricity, petrol, education and food are constant reminders of how increasingly difficult it is to make ends meet today, let alone save for the future.

Wilson adds that often people reach retirement age before realising that there just isn’t enough to carry them through for another 20 to 30 years. This means they must continue to work for a number of years or lower their standard of living, or both.

What is enough?

“If you retire at the age of 65, you need to have accumulated between 10 and 14 times your annual salary,” says Wilson. “This should help you to have a retirement income that is at least 75% of your salary.”

For example, if you are 25 years old, earning R10 000 a month and start saving R1 200 a month from today, you will have accumulated capital equal to 10 times your annual salary by the age of 65 (taking inflation and increases into account, both at 5%). However, if you are 45 years old, you need to put away R3 600 a month to reach the same multiple by the age of 65.

Steps to saving for retirement

Step 1 – Start today. It’s never too late. If you find it difficult to spare an extra cent, think of where you can cut down. A DStv subscription costs over R600 a month. If that money is saved with a potential return of 8% for the next 20 years, you could save R550 000.
Step 2 – When you get your salary increase, increase your premiums.
Step 3 – When you get a new job or promotion, increase your premiums again.
Step 4 – When you get your bonus, inject a lump sum into your retirement.

Choose the right retirement income solution

This can seem tricky. Many people outlive their retirement savings because they choose a living annuity and have excessive draw-down rates and use too much of their savings in the early years of their retirement.

Current thinking suggests that if you expect to live longer than the age of 80, you may be better off buying a guaranteed annuity that increases over time with inflation. Although the initial income may be lower than what you could draw down from a living annuity, it may be higher at a later stage in life if it increases with inflation. You also have the added benefit of a certainty of income for as long as you live.

There are many retirement solutions to choose from and, due to increasingly sophisticated retirement products, it is vital to seek financial advice about the most appropriate way to plan for your retirement.

Should you be looking to invest a lump sum of R50 000 or more for your retirement, you may want to ask your adviser or broker about XtraMAX from Old Mutual Max Investments. This is an innovative new investment solution that adds 5% extra to your investment upfront, while also giving you an option to have guarantees in order to protect your investment.

 

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