One of an individual’s goals in life should be retiring with financial security. To achieve financial independence and enjoy a care-free retirement, you have to start saving when you are young. Retirement planning is done by allocating savings or revenue for your retirement, with the goal of achieving financial independence upon retirement. It also entails organising your finances, with the assistance of a financial planner, for the period of life after you stop working. In South Africa, retirement annuity (RA) and pension fund contributions are tax deductible up to certain limits, with which a financial planner will be able to assist.
Retirement planning includes identifying sources of income, estimating your future expenses, implementing a savings programme and managing your assets. The amount needed to retire comfortably differs by individual. There are several rules of thumb that give an idea of how much to save but to be able to do this, proper retirement planning is essential. Whatever method you (or your financial planner) decide on, it is important to start the process as early as possible. Through the magic of compounding returns, beginning your retirement investing early will allow the market to contribute more to your retirement savings than you do. Conversely, if you start investing late in life, you will have to contribute more money yourself, while less money comes from compounding returns.
Once an individual reaches retirement age, you go from accumulating wealth to what financial planners call the distribution phase. This means you are no longer paying in, but instead your decades of saving are paying out for you to sustain a comfortable standard of living.
When deciding on retirement vehicles or options, several factors should be considered including:
- At what age do you hope to retire?
- How long do you reasonably expect to live?
- How much money will you need to cover your expenses after retirement?
- From which sources will your retirement money come?
Retirement planning is highly individualised – every person’s situation is unique. The first place to start is by saving and investing money through one or several available options – a savings account, RAs, pension or provident funds etc. While you can choose to invest on your own, it is always better to have the assistance of a financial planner and the expertise he/ she can provide. Keep in mind that the higher your fees, the lower your return (all things being equal) so be sure get a clear understanding of what you’re paying.
Individuals can contribute as much as 27.5% (capped at R350,000 p.a.) of their gross remuneration or taxable income towards pension/ provident funds or RAs. It is also important to take advantage of tax breaks linked to retirement products.
Diversification, the process of splitting your investments between various asset classes (equities, bonds, cash etc.), is extremely important. An individual should regularly review their retirement portfolio and make any changes deemed necessary.
Who can assist me in planning my retirement?
Anchor can assist you in planning your retirement by considering your unique individual needs and circumstances, and by providing the financial advice based on criteria unique to you and your situation. Contact us on 011 591 0677 or email us at firstname.lastname@example.org.