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Think about it as saving for your financial freedom, not retirement

The language of retirement doesn’t appeal to those in their 20s. So it’s time to change the language.
The first step in the journey towards freedom is to define exactly what that means. Image: Shutterstock

One of the most troubling statistics about South Africa is the fact that just 6% of working people are able to retire comfortably, meaning they have savings equivalent to roughly 70% of their pre-retirement salaries.

For the rest, this means one of two things: they will either become wards of the state’s social welfare system or their families (or a combination of both), or they will have to downscale.

The reasons for this sorry predicament have been explored exhaustively. South Africans are poor savers and we are besotted with a consumer culture that urges us to spend now and worry about the future some other time.

Nirdev Desai, head of sales at PSG Wealth, says part of the problem for people in their 20s is that retirement is a distant event. They have other more pressing needs, such as paying for their education, marriage and a house.

“Another problem is the language of retirement. Few people in their 20s are motivated to save for a day when they feel they will be decrepit. So the language of savings has to change. People should start saving in their 20s, but what they are saving for is their future freedom, whether that is a better standard of living, an overseas holiday, a sabbatical and, indeed, retirement.

“Each person’s definition of freedom will be different, but this is a goal that everyone can get behind for the simple reason that no one feels they have achieved the level of freedom they desire.”

The first step in the journey towards freedom is to define exactly what that means. Desai says financial advisors today are really life coaches who help clients explore their life goals and set pathways and milestones to help them achieve those goals.

“Whatever freedom means to you, you have to start saving in your 20s. In SA, the age of mortality for men is 63, and slightly higher older for women. Past that, you have a 50% chance of living to 90. There is some evidence to suggest that those who have adequately saved for retirement also live longer than those who don’t,” he says.

Watch:  Investing for a comfortable retirement

“For many young people, there is a perception that at 65 you’re getting ready to move into an old age home. This is far from the truth. At this age, you should be able to pursue the goals you worked towards all your life, such as travel, and perhaps even starting a new business. Many retired people jump right back into the working world because companies value their experience.”

In a recent newsletter to clients, Desai notes that the old rule of thumb stating that you should save 15% of your salary from the time you start working may not be sufficient. Instead, those who want to retire with a ‘replacement’ salary of 70% of their final salary will have to incrementally increase the amount saved with each salary increase. 

Here’s how it works:

Source: PSG Wealth

Let’s assume your salary jumps to R25 000 a month by the time you are 55. You will have to be saving 40% to be able to retire drawing 70% of your pre-retirement salary. It is simply not feasible to save 40% of your salary at this stage in your working career, for the simple reason that ‘lifestyle creep’ sets in – you have higher monthly expenses and your disposable income is likely nowhere near this.

The solution is to start saving closer to 25% of your salary from the time you start working.

Desai concedes this is tough to sell to someone starting out in their career, but absolutely vital to anyone looking to achieve any degree of freedom.

“People need to start thinking of wealth as intergenerational, something that will be handed on to their children and grandchildren,” says Desai. “Financial planners are a vital part of the discipline of saving: they help you identify your goals and see how savings targets can be met. Rather like going to the gym on your own, without a financial planner, people find it easier to slip back into bad habits when they hit a financial emergency. The financial planner can guide you through the inevitable bumps and cries that come in the course of a lifetime. But this is a lifetime journey and, from our experience, the best way to get there is with a guide at your shoulder.”

Desai points out that having financial freedom means less physical and emotional stress, which allows you to live a longer life. Those who get into the habit of saving early find it no stress at all. 

Brought to you by PSG Wealth (PSG Multi-Management, FSP 44306). For more information, visit www.psg.co.za

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Saving for financial freedom means ensuring that wherever your savings go , they cannot/must not be subject to future Govt control. Anything like Pension funds , LAs etc which Govt can (and in RSA will) regulate should be avoided : Keep everything under YOUR control and preferably mostly OFFshore.
The Zimbabwe example says it all : Pensions/currency destroyed ; it is no different here .

I was faced with similar situation. I chose to sell my home and pay cash for a cheaper place. My problem is the question mark about property rights? Should I have bought? I think not. Should have moved the proceeds overseas and rented instead. I have stopped any improvements thus inadvertently depriving people of jobs and considering selling again. I don’t believe anything the ANC says. I would be very careful about investing in a home bond.

I only earn 6000 a month, how does this help me.
What must I do to gain financial freedom?

This may sound insensitive, but in the long run it is the only recipe that works: Start off by spending only (say) 5000 a month and save the rest in a fee-less savings account until you have enough to open a lowest-fee unit trust or stockbroking account. Also, aim to constantly and drastically improve your skills and income. Live as close to your work as possible. Never stop saving. Only have one child, or perhaps no children. Never buy a house, always rent. (The only property to own is commercial property with a blue-chip tenant – and that is likely to remain forever beyond your and my reach.) Avoid gambling and all get-rich-quick schemes – they are only intended to steal your money.

This article truly rings home for me. I think that the outlook on retirement is completely skewed, not only in SA but globally. The idea of saving now & deferring life for 40 years so that you can finally start living is completely bogus. This is the sort of thinking that puts 20/30-year-olds off of even thinking about planning for retirement.

This doesn’t mean I don’t agree with saving, quite the opposite actually, saving is crucial to financial freedom. To change this mindset when saving, your goal should be, how can build my wealth so I never need to earn another paycheck again or in the words of YNAB, the goal should be to live on last months income. This is real financial freedom, regardless of the age you want to achieve this goal or the age you start your journey to get to your goal, the best is to get started.

A great place to start is with the book, The Richest Man in Babylon.
2 really good videos to watch are by Dan Lok, Author of FU Money and another great book to read. The Wealth Triangle™ – Dan Lok’s Pioneered Wealth Strategy – How to Invest Like a Millionaire: https://www.youtube.com/watch?v=hjgN-K_b7nk & How To Manage Your Money Like The Rich: https://www.youtube.com/watch?v=K7uhGjsy5d8

The next is to speak to your financial planner or wealth coach and why they are invaluable in your journey towards financial freedom. It’s also the reason why they will never be replaced by technology such as Robo-advisers. They are the people that will help you steer your wealth in the right direction.

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