Retirement is a point in life where important and complex financial decisions are made. Our advice starts by first understanding your unique circumstances and long term goals. These goals might include providing for a regular monthly income through your lifetime, maintaining a certain standard of living, providing a supplementary income to children, or preserving capital for an inheritance to children living locally or abroad.
Whatever your objective, we will guide you in understanding the optimal income that can be safely drawn to ensure that your capital sum is not eroded, but also vitally that your income can increase to keep pace with inflation.
It’s never too early to start saving for retirement. Every little bit you save counts and these savings will grow over time to secure a solid nest egg so that you can enjoy a comfortable retirement. The biggest barriers to retirement planning, beside the inevitable, unpredictable and uncontrollable changes in the investment environment, are people’s stubborn belief that they know better, a prevalent culture of immediate gratification and a tendency to procrastinate. A stark reality of retirement planning is that your future is riding on the quality (read: plausibility) of your assumptions. Abject optimism can be dangerous.
A potentially flawed assumption is that you will be able to keep working past 65. Yet a recent study found that more than half of workers said they expect to still be on the clock past age 65. By comparison, less than 15 percent of today’s retirees kept working that long. If you plan on working longer as a way to get by in retirement, you are going to be in trouble. Working past retirement age should be a complement to a solid savings and spending plan, not the foundation. It’s simply too risky to assume you will indeed be able to work longer.
Statistics show that only six percent of South Africans will be financially independent when they retire. This is purely because of a lack of planning and because of people not saving enough for their retirement. Research shows that the standard pension fund will not be sufficient to financially sustain the member upon retirement. More money should therefore be invested for one’s retirement. Starting early is better. You’ll give your retirement funds more time to grow and hedge your savings against future upsets. One study found that six out of 10 people in their 50’s and 60’s experience a job loss, illness or other income-shattering calamity.
But how can you ensure that you will have enough money come retirement? The standard answer to this question is that between 10% to 15% of your income should be saved for retirement while you are in your twenties. This, unfortunately, is not the case when you are that age – other things, products, services, luxuries – seem more important at the time. If that was you, fear not. By getting proper financial advice you should be able to calculate what income you will need at retirement based on your retirement needs, financial situation and responsibilities.
A good place to start is with this simple calculation: Look at your current budget and decide how you want or expect each item to change when you retire. This will give you an idea of the percentage of your salary you’ll need as an income during retirement. Don’t forget lifestyle calculations. Price inflation is a general increase in prices and a corresponding fall in the purchasing power of your money. Salary increases that keep pace with inflation allow you to maintain a fixed standard of living over time. However, salary increases that exceed price inflation may increase your standard of living and therefor also your cost of living.
Planning for your retirement is not as scary or as complicated as misconceptions have made it appear. It is a relatively straight-forward process – and with financial advisors readily available, as well as a host of retirement vehicles, there should be no excuses to neglect the financial health of your future. A small sacrifice today may mean the difference between having long-term financial stability and having to rely on your family for your living expenses.
Saving and planning for retirement, whether you are at the beginning, middle or end of your working life is paramount. The earlier one can start this process, the better as the power of compounding is a powerful tool in achieving ones goals.
We can assist in structuring your retirement portfolio, assuring that your long-term financial stability are taking care of. Contact Us to set up an appointment.