Figures show that only about 6% of South Africans will one day be able to retire comfortably; the rest will depend on their children, the state or other possible sources of income when they stop working for the day.
Recent polls and research have also shown anew that the so-called sandwich generation – those who support not only children, but also parents and other adult dependents – is increasing every year. It also underlines the importance of starting to provide for retirement at an early stage.
“A generation that actually has to provide for two financially dependent generations can easily neglect to provide enough for their own retirement due to the financial pressure to support their children and parents,” says Thys van Zyl, head of product development at Everest Wealth.
“Moreover, people are living longer and longer.
“However, this vicious cycle can be broken by planning for retirement early on and being smart with investments for retirement.”
Van Zyl says it is essential to have a clear scope of your financial situation.
“This includes all your debt and savings as well as all the savings options you already have ready for retirement. Determine whether you are contributing to a pension fund, provident fund or retirement annuity, or more than one.
“The next step is to determine with the help of a financial planner how much you will need for retirement as people often underestimate how much they need to retire with.
“This is determined taking into account your personal circumstances, the age at which you plan to retire and the lifestyle you will want to maintain in retirement. It is also important to know what amounts will be immediately available to you upon retirement, what monthly income you will get and what tax implications there are.”
Most SA pensioners are poor
The international asset manager Allianz Group found in its latest Global Pension Report that South Africa has some of the poorest pensioners. Van Zyl says this leads to growing concern for not only retirees, but also active workers. It is important that people know what options are available to them when it comes to retirement.
“Financial advisors can help people with the options available to prioritize retirement savings and create a comprehensive financial plan to achieve this.”
Changes to legislation regarding retirement must also be kept in mind, says Van Zyl.
“The proposed two-pot pension fund system could possibly be implemented as early as March next year. The option to withdraw retirement money will possibly bring much-needed relief to many people in times of cash crunch, but this will have to be done with great caution in terms of the long-term impact on retirement savings.”
If money is withdrawn too often, it will mean that a worker has saved much less money over a long period of time than someone who has left this money untouched. The money that was withdrawn could have grown significantly over the specific period and this could make a substantial difference in the amount that is finally available for retirement, warns Van Zyl.
“Thus regularly withdrawing your savings will have a compounding effect over time. It’s definitely not something you should keep doing or even do regularly.”
Van Zyl says that workers who withdraw money from their retirement fund are probably not going to be in a position to put the withdrawn money back so that it can continue to grow.