Saving for your retirement is crucial to ensure that you are able to maintain your lifestyle or one  similar when you retire. Your retirement fund, on top of any additional savings/investments that you have, should be able to help you cover your expenses each month. This is to ensure that you have a comfortable life during your ‘golden years’.

What Is A Retirement Fund?

Simply put, a retirement fund is an account to which you contribute money towards on a regular basis while you are working. This will provide you with an income when you reach your retirement age. 

Different Types Of Pension Funds & How They Work?

There are four different types of retirement funds in South Africa.

1. A Pension Fund – This is offered to you by your current employer and is not available to the public. This retirement fund receives frequent contributions from you as well as your employer on a monthly basis. Your pension fund can be carried across to a new employer. 
2. A Provident Fund – Much like a pension fund, a provident fund is based on the same principles. However, in the case that you resign or retire, you are able to take the entire sum of cash in your provident fund. Additionally, if you do choose this route, you are taxed on the amount taken from this fund. 
3. A Preservation Fund – The preservation fund allows you to preserve your pension fund or provident fund when you move from one employer to another. This enables you to not cashout on your retirement savings and focus on growing it with your monthly contributions.
4. A Retirement Annuity (RA) – A retirement annuity is considered to be a more long term option for your retirement savings. With an RA, you would need to contribute towards it on a monthly basis. Additionally, an RA has a non-taxable benefit. 

Why Is It Best To Start Saving For Retirement Early?

Saving for retirement when you are young may seem unnecessary. However, the earlier you intend on starting and contributing towards your retirement fund, the more time and potential your retirement fund will have to grow. With your retirement fund in place, you are able to contribute more towards it as your salary grows. This will ensure that when you retire, you are completely self-sufficient throughout your golden years and less dependent on family members. 

According to News24.com, in a study conducted by News24 in partnership with Sanlam, found that only 36% of respondents have a retirement fund, while only 7% of retirees feel well prepared for it. Additionally, “just 17.6% of those aged 25-29 have a retirement product, and it’s lower for 18-24 at 10.4%.”

Why Should You Not Cash Out Your Retirement Savings

Using your retirement savings, much like any other savings/investment account that you may have, can lead you to having to replace it down the line. When you start your retirement fund, its sole purpose is for you to allocate funds toward it each month in order to sustain your retirement. However, if you are thinking about utilising some of the funds to purchase a car or pay down some debt, try avoiding this option! The implications of this can lead you to having to utilise more debt when you retire, or not having enough funds to sustain your lifestyle. 

Why You Should Eliminate All Debt Before You Retire

Before retiring, your goal should be to eliminate all debt that you have. This includes vehicle finance, home loans, credit cards, overdrafts or store accounts. Naturally, when you retire, your budget will be smaller. This can make paying your debt more difficult to keep up with. Additionally, when you retire, you would want to utilise a majority of the monthly funds you receive to cover important expenses. These expenses are food, water, rent, electricity and any taxes or levies you may have. 

If you are struggling to pay off your debt and in need of assistance, contact us today. Our debt experts will guide you through one of our free financial assessments and provide you with sound financial advice.