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Saving for future you: why saving towards retirement matters

Retirement planning can feel overwhelming due to the uncertainties involved: you can't predict how long you'll live, what your future costs will be, or how healthy you will be. These unknowns make it hard to know how much money to set aside for the future. However, with some guidance, you can approach retirement planning confidently.

 

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Everything Counts | Episode 11: Saving for your future self

In this episode of Everything Counts, we discuss retirement planning and saving for your future self. Host Motheo Khoaripe is joined by Kate Robson (co-head of Investec My Investments) and Kgomotso Motloung (Investec financial adviser). The conversation covers setting retirement goals, calculating how much you’ll need, and avoiding common financial mistakes. Whether you’re in your 30s or nearing retirement, this episode offers valuable insights on how to prepare for a financially secure future.

Listen to the full series

 

Planning for retirement in South Africa

Start by thinking about your future lifestyle needs, including housing and healthcare. Everyone’s retirement goals and needs are different, so talk to a financial adviser for personalised advice. The sooner you start saving, the better - it’s never too late to start.

 

How much should I be saving for retirement?

A common rule of thumb is to aim to save 20 times your annual salary. But, you should also consider factors such as:

Your desired lifestyle

Do you want to maintain your current standard of living, or are you open to changes? Do you want to retire in South Africa, or would you want to live abroad?

Changes in expenses

Some of your financial obligations, such as your bond or school fees, may fall away by retirement. But you may end up spending more on healthcare or travel.  

Time left to save

The earlier you start saving, the more you can rely on compound interest to do some of the heavy lifting. If you’re not on track to reach your goals, you may need to start increasing your current retirement contributions.

Inflation

Don’t forget to factor in inflation when planning your retirement savings, as this significantly impacts your retirement goal. Your financial adviser can help you make these calculations to ensure your savings trajectory will satisfy your future needs.

Your investment strategy

Your investment strategy could evolve as you approach retirement, and at this point your relationship with your financial adviser becomes invaluable. When you’re young, you have time on your side and can tolerate a more aggressive investment strategy. When you’re approaching retirement, your adviser will help you derisk your portfolio to focus on the preservation of your capital.

What does responsible financial behaviour look like?

Responsible financial behaviour is about setting clear savings goals and regularly contributing to your retirement fund. It’s important to be disciplined with your finances and focus on long-term stability instead of giving in to impulse purchases. Making small lifestyle changes and prioritising saving can make a big difference down the road.

Consider what you’re willing to give up today to ensure a more comfortable future. Cutting back on dining out, limiting luxury buys and delaying major purchases can all help you divert more funds towards your retirement investments.

 

How to save for retirement in South Africa

To save for retirement in South Africa, start saving early and take advantage of time to build your savings. Use employer-sponsored funds, like pension or provident funds, and explore individual retirement annuities for more flexibility. Adjust your strategy over time for long-term financial stability.

Four investment vehicles to consider for retirement:

  1. Pension fund: This is a retirement plan offered by your employer. They automatically deduct contributions from your salary before taxes, and many companies even match your contributions. It's managed by trustees who choose investment strategies to help your savings grow based on how long you have until retirement.
  2. Provident fund: Think of this as a pension fund with a twist. It works similarly but lets you take out a lump sum when you retire. Like a pension, your contributions are deducted pre-tax, and trustees manage how the money is invested for your future.
  3. Preservation fund: If you leave your job, this fund safeguards your retirement savings. It’s a one-time retirement account where you can't add more money, but your existing funds can still grow over time, protecting your savings.
  4. Retirement annuity: This is a flexible retirement savings option you can set up on your own. You decide how much to contribute and which investments to choose. You’ll be able to access the money from age 55, giving you the chance to grow your savings while enjoying tax benefits along the way.

Leading up to retirement

27.5 %
For the 2023/24 tax year, the deductible contribution limit is 27.5% of taxable income or R350 000 per annum, whichever is higher.
  • If your savings are not where they need to be, delay your retirement for as long as you can. Working, and saving, for a few more years can result in steep gains, especially as the effects of compounding are greater the longer you remain invested.
  • Pay off debts as soon as you can, and use any spare cash to supplement your retirement savings Individuals can deduct contributions to pension, provident, and retirement annuity funds from their taxable income, subject to a limit. For the 2023/24 tax year, the deductible contribution limit is 27.5% of taxable income or remuneration, or R350 000 per annum, whichever is higher. While this limit applies to tax deductions, it does not cap the total contributions you can make. Contributions to workplace retirement funds may be restricted by specific fund rules, but retirement annuities have no upper limit.

 

Kgomotso Motloung
Kgomotso Motloung, Investec financial adviser

Maintain short-term savings for emergencies, so you're not tempted to dip into your retirement savings

 

  • If you change jobs, resist the temptation to cash in your retirement savings early; instead, consider transferring your savings to a preservation fund to ensure continued growth.

 

Financial mistakes to avoid in retirement

As you approach retirement, it’s vital to avoid some common mistakes that can jeopardise your hard-earned savings. In South Africa, only about 6% of people can retire comfortably, so planning ahead is crucial.

Here are some key points to consider:

 

  • Plan before retirement:

    It’s best to make important financial decisions well in advance. Trying to change your strategy nearer to retirement can be challenging.

    Understand your savings needs:

    If you have, say R3 million, saved up, remember that it needs to last you for possibly another 20 years. Don’t underestimate the longevity of your savings.

    Be cautious with withdrawals:

    Think carefully about how you draw from your retirement savings. Living annuities can be a good option, allowing your capital to grow even while you take income.

    Seek professional guidance:

    A financial adviser can help identify gaps in your plan and guide you through the complexities of retirement savings.

Ultimately, the earlier you start planning and the more informed you are about your financial future, the better prepared you’ll be to enjoy a comfortable retirement.

 

Must knows

Related questions

  • Is 55 too early to retire?

    Is 55 too early to retire?

    You can retire at 55 in South Africa, but you’ll need around 20% more savings to maintain your lifestyle in retirement. By working until the age of 60 or beyond, and continuing to save, you can benefit from additional tax-free growth on your retirement savings, which can significantly add to your financial security.

  • What is the two-pot retirement system in South Africa?

    What is the two-pot retirement system in South Africa?

    The two-pot retirement system allows South Africans to access a portion of their retirement savings for emergencies. One third of retirement funds are preserved in a savings component that can be accessed at any point in time, while the remaining two-thirds are reserved for retirement, ensuring financial security.


Chat to a financial adviser

As one of the most important investments you’ll ever make, financial advice will help guide you to make the most of your investment opportunities so that you can enjoy a comfortable, stress-free retirement.

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Access local and international investment opportunities through our secure online environment
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