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24 June 2013
Retirement is considered as a period in life when an individual stops working when they reach a certain age. It is a state of mind, as well as a financial issue. Due to individuals varying level of income and the need for income once ceasing to work, the age of retirement differs. In South Africa, the average age for retirement varies from 60-65 years old. According to the Sanlam Benchmark Survey, “61% of South Africans are unable to save for a ‘rainy day’ fund after retirement due to the pressures of expenses and 33% are still in debt after they stop working”. Due to the fact that South African consumers are not only faced with a debt crisis, but also a retirement crisis, DebtBusters offers the following advice on how to assist you with retiring comfortably, as well as at a reasonable age.
Employees make many mistakes throughout their working life with regards to planning for retirement. It is recommended that employees start saving at the age of 23, generally when one gets their first job. However, in South Africa, “56% of employees only start saving at the age of 28” according to the Sanlam Benchmark Survey. It is essential that you start planning for retirement from a young age, as the sooner you start saving for retirement; the better your financial circumstances will be later on in life. Start saving as early as possible and the behaviour will become engrained. Even if you start out saving a small amount each month, your savings will grow and pay back a much greater amount at a later stage.
Determining where to save your money can be challenging and is dependent on your financial goals, accessibility to the funds, the ability to stop paying into the fund and where your money is being invested. It is important to always save for retirement on consistent basis but if you have certain short term financial goals that take priority, it may be better to put your money in more than one place.
Before entering into a retirement agreement, you should also know whether you will be able to access the money in the event of an emergency. Debtbusters advises that money set aside for retirement should not be accessed until retirement. Through certain retirement agreements, such as a retirement annuity, you will only be able to access the funds at the age of 55.
Furthermore, it is also important to establish whether your retirement savings contract is voluntary and what the consequences are of pulling out and stopping payments. Certain retirement contracts may require you to make payments until a certain age or will charge you termination fees.
One of the most significant parts of your retirement contract is associated with where your money is being invested. Your savings could be invested into various funds such as bonds, shares, stocks and market funds, each exposing your money to different risk levels. This will have an impact on the amount of money that is returned to you once you have retired.
The most common means of storing retirement savings are through retirement annuities and retirement funds. A retirement annuity is an agreement established with an insurance company. It usually involves paying money into an account on a monthly basis, before retirement. When you retire, you will be allowed to retrieve your funds, which will either be paid out in a regular fixed amount or an amount based on how much your investment earns and your earnings will only be taxed once it’s withdrawn. It is important to bear in mind that annuities are managed by individual investors and management fees can be higher than other retirement funds. A pension fund usually entails an employee contributing a certain amount that either exceeds or is matched by an employer contribution. A pension fund is set up by an employer for groups of employees and cannot be set up by the individuals themselves. They are usually larger funds, which results in lower management fees.
The most commonly asked question with regards to retirement is when is the right time to retire? However, the time to retire depends entirely on the individual and what it is that they want to do at a later stage in life and if they will have enough funds. In order to help yourself decide when the best time to retire is ask the following questions: How old are you now? What do you want to do when you retire? How much money have you been putting away each month? Do you expect your family to look after you when you are unable to care for yourself? What is the status of your health? Have you paid towards any retirement plans while working? What is the status of your health? These questions and answers are crucial in order to determine when the right time for you to retire is and how much money you will need when you retire. Obviously, the more money you put away each month and the period of time you spend investing will determine how much money you will have at your disposal when you retire.
However, in order to retire comfortably it is best that you take note of the following guidelines determined by the Sanlam Benchmark Survey. After working for a period of 10 years, you need to have saved 2 times your annual salary. Therefore, if you start working at the age of 20, by the time you are 30 years old you will need to have saved 2 times your annual salary. After working for a period of 20 years, you need to have saved 4 times your annual salary. After working for a period of 30 years, you need to have saved 7 times your salary and lastly, after working for 40 years, you need to have saved 12 times your salary.
If you are currently struggling with debt and concerned about your financial future, contact debtbusters today on 0869990606 or visit our website on www.debtbusters.co.za. DebtBusters provide expert financial advice and debt management services that will assist you with building a brighter future and ensure that you retire comfortably.