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Have You Thought About a Retirement Annuity Yet? It's Not Too Late

We cannot stress enough the importance of having a retirement annuity or another form of savings or investment to finance your years of retirement.

As South Africans, we are faced with a plethora of challenges which make providing for our retirement relatively tricky.

With exorbitant inflation rates, high interest rates, high tax rates and the general level of bad debt, South African citizens must work extra hard to save enough for “one day”.

Our financial advisors believe that starting to save as early as possible will be the best thing you will ever do for yourself as the longer you save for, the more your money will grow.

Planning for Retirement in South Africa

One of the greatest financial risks that any person faces is the possibility that you may live longer than what your savings can provide for you.

Therefore, careful financial planning is necessary to beat these daunting odds. An important thing to remember is that financial planning should focus on pre-retirement as well as post-retirement goals.

Part of the planning process will require you to take into consideration the kind of lifestyle you wish to have once you retire, and how much capital you will need to support it.

5 Tips on How to Prepare for Retirement in South Africa

Although there are several, in-depth factors to consider when preparing for retirement, our financial advisors have compiled a list of 5 easy-to-do things which can help you along your way.

These tips can be applied to any person who wants to prepare for their retirement, but may be especially helpful for those who have started later on in life.

  • Choose your investments wisely

Regulation 28 of the Pension Fund Act stipulates the limits to which retirement funds are allowed to invest in various asset classes.

This regulation ensures that your investment risk is diversified and spread across different forms of assets such as bonds, shares and property.

In other words, the more you invest in different places, the less risk you face of losing all your money.

If you’re starting your savings late, choosing a retirement annuity which is more greatly exposed to shares or equities may be a good option for you.

Although investing in shares is riskier than other investments, you have the potential of earning a greater return in the long run.

  • Don’t cash in

When switching jobs, many people are tempted to cash in on their provident fund payment instead of re-investing it.

In doing so, you lose out on the benefits of compounding. Furthermore, you may face tax penalties for withdrawing your retirement fund which can take a significant portion of your final nest egg.

  • Make use of tax incentives

For those who are self-employed or employed by companies who do not offer the benefits of a provident fund, there is still the option of a retirement annuity (RA).

Contributions towards an RA are tax deductible up to 27.5% of your taxable income.

If you aim towards contributing as close to the tax-deductible limits as possible, you can save more, reduce your tax liability and enjoy tax-free growth inside your RA.

  • Be creative, find a side hustle

The more determined you are to save for your retirement, the more you will benefit from your efforts.

Instead of using your performance bonus, 13th cheque or annual increase to fuel a more extravagant lifestyle, save it instead. This will help you grow your money faster.

If possible, delay your retirement by a few years. Some professions to not require employees to fully retire at a certain age.

If you are in good health and presented with the opportunity to earn an active income for a few more years, this may be a good choice to make.

Additionally, find a side hustle. Think of creative ways to earn a second income and save that money every month. Don't look at this income as extra money to spend but rather extra money to save. You are already living within the means of your primary income, so continue that way and invest or save your 2nd income wisely.

  • Reconsider your lifestyle

Some people dream of retiring in style. However, unless you have a good few million saved, maintaining a lavish lifestyle will be practically impossible.

If you must, sell your bigger house and downscale to something modest and easy to maintain. Aim for a property which you are able to pay for in cash so bond repayments are not a concern.

Don’t buy a brand-new fancy car, rather get a small, fuel economical car which is in good condition and won’t cost thousands to maintain or repair.

Even if you feel that your nest-egg allows you to retire comfortably, by cutting down on unnecessary costs, you can stretch that money even further and enjoy the benefits.

Olemera Financial Planning Services

These are just a few ways that you can make sure you have enough saved for when you retire.

However, by working closely with one of our financial advisors, you can make sure that you invest wisely for your future.

For more information on the benefits of a retirement annuity, or to set up an appointment to discuss other ways of preparing for retirement, contact us.

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