Securing a solid financial future for yourself is crucial. That’s why a retirement plan is essential. It should be high on your financial priority list. However, about half of South African citizens do not have retirement funds.  A shocking 6% of SA citizens can retire comfortably says BusinessTech. Hence, many South Africans are unable to retire comfortably.

When To Start Saving? 

According to the head of Alexforbes Research, Vickie Lange, the earlier you start saving for retirement, the better. It is advised to try and retire with75% of your monthly income earned in pre-retirement. For example, for every R1000 earned pre-retirement, R750 is the estimated replacement income during retirement. Consumers should contribute 17% of their salary over 40 years towards their retirement plans to receive75% of their income monthly in retirement. Lange refers to this as the 75% replacement ratio. 

15% of Savings Rule

As mentioned previously, it’s advised to start saving as early as possible. T.Rowe Price, an investment management firm advises saving 15% of your income annually. The firm goes on to highlight that a consumer should have to save : 

• 3 times your salary by 45 years of age 
• 7 times your salary by 55 years of age 
• 11 times your salary by 65 years of age

Pension Funds And Retirement Funds 

Most companies provide a pension fund. The company pays a certain amount and the employee pays the rest. There are predetermined options to select from.  Nedbank states that there are investment limits that are applied, to ensure that a client’s pension fund is invested in a trustworthy way. All banks and credit providers offer retirement plans. 

Retirement funds provide a tax-efficient way of securing your retirement plans. You pay less income tax if you pay funds toward your retirement funds. Lastly, your retirement funds are not subjected to dividends and income tax.  Although, there are limits to the amount of money you can access and you have no say over where your money is invested. 

Finding A Retirement Plan That Suits You 

Although most companies have a retirement plan, the bank advises looking at additional investments to secure your retirement plan. Nedbank goes on to highlight key questions to consider when planning your retirement: 

• How much money can I set aside each month for retirement?
• When do I want to retire? 
• How far am I from retirement? 

Retirement plans are arguably one of the most important funds to consider. However, it is important to consider your financial well-being as a whole. With the cost of living at an all-time high, it is now, more than ever, extremely important to plan your financial future. To ensure a comfortable retirement, it is best to prioritise your income accordingly. This includes squashing any debt you have.  The sooner you become debt-free, the more you can invest in your retirement. Reach out to us to discuss formal debt solutions. 

Sources: BusinessTech, Nedbank Private Wealth