03 Aug How to avoid retirement funding regrets
Will your retirement funding be adequate?
In South Africa, six out of every 10 retirement fund members retire on less than 30% of their preretirement income. Imagine living on far less than you currently earn, for the rest of your life. It’s a scary idea!
The question is, how can you avoid it?
Simply belonging to a retirement of pension fund does not automatically produce the retirement funding income you require. Knowing your financial position and revisiting it regularly is the best way to keep your retirement funding plans on track.
It doesn’t matter how long you have been a fund member. What does matter is:
- How much capital you have today
- How much capital you can sustainably invest until retirement
- The number of years you have left till retirement
- How much you will need in today’s rands sustain your lifestyle in retirement
Most people start off investing enough to retire well. However, they decimate their retirement funding capital by withdrawing their accumulated benefits (instead of preserving them) when they resign/are retrenched. Make preserving your retirement funding capital your highest priority if you want to avoid retiring poor.
Make these 10 steps part of your financial lifestyle
- Keep an emergency cash reserve to avoid getting into debt or dipping into your retirement capital.
- Invest in your retirement fund consistently at 10 to 15% of gross income. Use the tax refund to repay debt or invest in a unit trust every year.
- Never withdraw capital from your retirement funding vehicles.
- Repay your home loan in full before retirement.
- Continue investing the amount of your bond repayment even once your home loan is settled.
- Don’t use your home loan for vehicle finance. Otherwise, increase your bond repayments to repay the debt for the vehicle in 3—5 years.
- Invest in a formal financial plan that lays out the route to a successful retirement and evaluate your progress every year.
- Diversify your investments in quality assets rather than looking for the next ‘one big winner’.
- Be proactive with your tax planning to avoid penalties and interest.
- Be available to discuss your parents’ finances. You may save yourself from having to support them.
Retiring successfully requires a plan, determination and a firm hand on the financial reins. The sooner you get to it the better. We have seen many clients turn their financial circumstances around through being aware of their situation and taking action.