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Retirement planning: don’t procrastinate

Planning and saving doesn’t need to be scary or complicated.

“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,” says Chris Benfield, CEO of Hollard Investments.

Saving for retirement is not something that should be left for the last minute. In fact, it is not something that should be overlooked at all or indefinitely discarded. Unfortunately, many people do not view saving for retirement a priority. According to the Old Mutual Savings and Investment Monitor, 26% of 18 to 30-year olds believe that saving for the future is not a priority and 43% of this age group do not have any formal financial retirement plans. Further, while 50% believe that death, funeral cover and disability cover is more important than saving for retirement, 39% of the working metro households believe that their children should look after them when they are old.

Shocking statistics, especially considering that there is so much advice geared around retirement products and vehicles – no one should be left dependent upon family members to help them during their retirement years.

This is not the case, unfortunately.

The Bankers Life and Casualty Center for a Secure Retirement 2012 Survey of Retirees showed that 93% of retired people who were surveyed wished that they had started saving earlier. The 2014 Sanlam Benchmark survey supports this, as it discovered that 59.2% of retirees who participated in the survey indicated that they experienced a shortfall between their income and expense in retirement. While there has been an improvement in the percentage of those who have some sort of retirement provision, one in three still do not have any form of retirement savings whatsoever. Dependence on the next generation is not the answer. If you are still working today, you can use the power of compounding, smart planning and advice to get to where you need to be.

However, for those who simply battle to save – and are not ignoring their inevitable retirement –there are some beneficial ways to start saving for your retirement now. While only one in four South African’s have a retirement annuity (RA), according to the Old Mutual Savings and Investment Monitor, this is one of the best and most convenient ways to save for your retirement.

“One of the easiest ways to save is with an RA This is a flexible and cost-effective retirement saving option. RAs typically allow an investor to contribute on an ad hoc basis – often subject to minimum investment mounts and other criteria – or on a regular basis, e.g. via monthly debit order. Such contributions are tax deductible up to a limit, and the investment is sheltered from capital gains tax and dividends tax, thus significantly improving potential returns for the investor,” says Benfield.

An RA is of particular importance especially if your company does not offer a provident or pension fund – and it remains an excellent way to grow your money to ensure a successful retirement. Karin Muller, Head of Sanlam’s Growth Market, says: “There are a number of long-term savings and investment vehicles available for retirement saving purposes, although RAs, company pension funds and provident funds are the most popular ones specially designed for this purpose. The difference, however, between a pension and provident fund is that members of the latter are currently able to take out their whole retirement savings as a lump sum when they retire, though this will change when the new retirement regulations come into effect in March 2015. From then on, provident fund members will also have to purchase pension products like an annuity when they retire.”

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, explains Muller.

“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,” says Michael Summerton, Product Development Manager at Allan Gray. “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.

“There are no full proof methods of ensuring financial independence in retirement,” says Benfield. “However, to give yourself the best chance, you need to start as early as possible, create and action a custom-built plan with the help of an accredited financial advisor, refine the plan as circumstances change and above all, keep focused on the end goal.”

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