Life flies by faster than you think so start saving for your future today. Develop a financial plan that suits your personal needs, and then be disciplined enough to stick to it.
That is the advice from Siba Njoba, financial planner at Alexander Forbes Financial Planning Consultant.
We live in a consumer-driven world and it’s easy to feel pressurised to spend your hard-earned cash on fashionable possessions. If you’re a Millennial, it’s more likely that you’re trying to stay ‘on trend’, and saving responsibly for retirement is probably the last thing on your mind.
Before you sign your life away, you should be clear about whether you’re satisfying a ‘need’ or a ‘want’.
You’re never too young to save
According to research released in the 2016 Sanlam Benchmark Survey, only 35% of pensioners believe they’ve saved enough for retirement, while a staggering 48% experience a shortfall between income and living expenses each month.
Imagine, working for over 40 years and then still struggling to make ends meet in retirement. Sadly, this is a reality faced by many South Africans.
When it comes to sound financial planning, it’s important to practice budgeting principles. One of the ways you can do this is by setting up a retirement annuity to increase and make provision for your retirement savings.
A retirement annuity is a particularly good savings solution for entrepreneurs who don’t have an employer providing them with the benefit of a pension or provident fund.
How do retirement annuities work?
The contributions you make to a retirement annuity are tax deductible and the returns that you earn are tax-free while you’re still invested in the fund.
You will, however, only be able to access your savings in the retirement annuity when you reach retirement age, and your final cash lump-sum payout will be limited to one third of your benefit’s value.
A typical retirement annuity premium starts at R500 per month – this is roughly the same amount as you’d spend on a monthly cell phone contract. The benefits of paying the retirement annuity premium will definitely outweigh having a new cell phone in the long run. This simple illustration shows that saving for retirement is not as impossible as it seems.
Do you have the nerve to preserve?
Preservation is key for those who have retirement savings through an employer. When you resign and move from one employer to another, you should carefully consider preserving your benefit in a preservation fund instead of taking it as cash and being taxed on it.
If you invest your savings in a preservation fund, you’ll be allowed to make one taxable withdrawal should you experience financial difficulties at some stage in the future.
What about property?
Buying an investment property is another option. Once the property is paid up, you can use the rental income as part of your retirement income. Property is a long-term investment, however, so you’ll need to think carefully about the various risks and factors that might impact on your investment, such as upfront costs, dealing with difficult tenants, agency costs, bond repayments, maintenance costs, and interest rate hikes.
It is worth bearing in mind that property is not a flexible investment because the selling process can take longer than expected.
Speak to the experts
Making big financial decisions can be overwhelming as there are many different ways and strategies to approach retirement planning. This is why it’s a good idea to speak to a qualified financial planner, who will be able to guide you on your journey to financial well-being.
It’s also vital to review your financial plan every year so that you can make sure that you’re still on track to meet your long-term financial goals.
Source: Business Tech