5 New Year Resolutions for a Comfortable Retirement
21 January 2014 | Retirement | General | Steven Nathan, 10X Investments
The start of a new year presents an opportune time to implement proper planning and preparation to better ensure a financially secure retirement. According to South African National Treasury, only 6% of the population will have accumulated enough money to comfortably retire, without having to comprise their standard of living. In addition to this, the World Health Organisation (WHO) statistics reveal that people around the world are living longer, which adds to the challenges of providing enough for retirement.
With these factors in mind, Steven Nathan, Chief Executive Officer of 10X Investments, urges consumers to implement 5 New Year retirement investing resolutions to ensure a comfortable retirement:
1. Set a retirement goal
In order to begin saving for retirement, you need to clearly quantify your goal. You need to calculate how big of a pot of money is needed to be set aside in order to ensure a comfortable retirement. A good place to start is to work towards a minimum replacement of 60% of your final salary, or around 10 times your current annual salary.
2. The lower the fees, the greater the retirement pot
Watch out for high fees. You should always ensure that you are paying low fees, certainly no more than 1.5% and preferably below 1%. Why? If you can save 1% in fees, your final pension amount would increase by about 30%. A recent National Treasury study found that if consumers could reduce their fees from 2.5% to 0.5% then they would be able to double their final pension.
3. High equity investment strategy
You should have an age appropriate investments strategy. Nathan advises having 75% invested in growth assets, such as listed shares and property, to reach your goal and generate a return of between 5% and 6% per year above inflation. You can then switch to a more conservative portfolio five years before retirement.
4. Implement a strict savings regime
You should be saving at least 15% of your monthly salary for 40 years to build a sufficient retirement pot. It is vital to avoid the temptation to defer savings or cash in when changing jobs. You should save as much as you can for as long as you can.
5. Compound interest is your best friend
Stay the course. The lesson here is to ignore short-term stock market volatility and the distraction of market commentators that often encourage investors to switch funds or change their savings strategy based upon recent events. Your goal is to maximise the size of your investment at retirement and not to worry about short-term stock market volatility, which is unpredictable and unavoidable.
"The earlier a person starts planning for retirement the better. With the priority on retirement reform in 2014, hopefully more people will be encouraged to focus on this critical issue,” concludes Nathan.
