By TKay Nthebe
Many people do not take retirement savings seriously enough. While some make excuses such as “I’m too young,” “I may not live long,” “The government will cover me”, others think they are saving enough. However, a recent survey in South Africa has shown that 92% of retirees are not saving enough and are saving late.
Let’s explore the top three reasons why you should take retirement savings seriously:
- Quality of Life
Thanks to modern improvements in health care and education, more and more people live much longer than before. If you retire at age 65-years for example, the trend is to live for another 20-25 years. This means you need to have enough savings to afford basic needs, maintain your lifestyles and to pursue lifelong projects and hobbies post-retirement. You will also need enough money to cover your health costs as you grow older. Without adequate retirement savings, all this won’t be possible.
- Financial Freedom
Imagine going through life with enough earnings to live independently and then having to rely on others after you retire.
- You may not want to rely on the government and earn a state pension of M800. Could you live on that?
- You may not want to rely on your children. You may not want to risk being a burden on your children.
- You may not want to be forced to continue working to support yourself in your old age.
Saving for retirement gives you the freedom to live independently and comfortably when you retire.
- Tax Benefits
When you save for retirement, you can claim the contributions for tax purposes and therefore pay less tax annually. This is an incentive provided by the government to encourage you as a citizen to save for your retirement.
So how much do you need to invest?
How much you need to save differs from individual to individual and it depends on several factors such as:
- What part of your pre-retirement expenses will you still pay for at retirement?
- What you will no longer pay for at retirement. (E.g., A car, a house and school fees).
- What new expenses or increases will start at retirement. (E.g., traveling, new hobbies, projects and increase in medical bills).
As a rule of thumb, experts advise that you save at least 15% of your pre-tax income and start investing from the age of 23. However, whether you are 30 or over 40 years of age, it is never too late to start and every bit of investment counts. The earlier you start saving and investing, the greater you’ll benefit from compound interest and, thus grow your savings.
How can you start investing?
Through your employer: If you work for a company, your employer may have a pensions plan/scheme for employees.
Directly: If you are self-employed or if your employer does not offer a pensions plan, you can buy a retirement annuity offered by an insurance company.
The Alliance Umbrella Fund offers employer schemes a range of investment funds which make it easy for members to grow their retirement savings during their working lives. For solutions that suit your retirement needs, visit the Alliance Umbrella Fund for more information.
