Accumulating extra savings early in life ensures comfortable retirement

The gloomy picture that is painted by retirement statistics, showing that only 6% of South Africans will retire comfortably, highlights the urgent need for people to build themselves extra savings in order to make ends meet during retirement, says Lezanne Human, CEO of FNB Investment Products and Premier Banking.

“If you are not in the habit of saving a portion of your salary when you are young, you may find yourself unable to retire at a desired age or with insufficient funds to maintain your standard of living once retired,” says Human.

Since many people do not make sufficient savings during retirement, they face a bleak future of depending upon children for financial support, others will continue to work, and many look for help from the government social welfare.

“Successful retirement planning is about discipline and patience. People need to start making extra savings as soon as they begin to work,” says Human.

To reap the benefits of savings and investing, you need to start early and ensure that you have exposure to different investment vehicles. Investment specialists within the FNB Investment product team, advise that one can consider the inclusion of any combination of the following investment options in their portfolio to supplement retirement savings:

• Fixed Deposits: This investment vehicle offers you the benefit of a higher interest rate and the discipline of not being able to spend your savings on a whim. It is a safe way of investing money if you need a guaranteed return on your funds. Terms are anything from1 month up to 5 years, with interest reinvested or paid out. Currently, the average interest rate you can earn on a long-term fixed deposit is approximately 7%.
• Notice Deposits: Notice deposit investments allow limited access to your funds with competitive returns. It is suited for individuals that require access to their funds within a short notice.
• Demand Deposits: Offer investors instant access to their funds and competitive returns.
• Share Investing: The stock market offers great opportunities for investors who want to diversify their portfolios and earn higher potential returns with an element of risk.

The FNB Share Builder product targets and enables the small investor to buy direct holdings of pre-selected shares and exchange traded funds listed on the Johannesburg Stock Exchange (JSE).

Share Builder reduces the apprehension and risk when selecting shares by offering a simplified choice of shares, thus helping the new investor to get started. In addition, detailed educational information is offered on the FNB website to assist beginners.

For the more savvy investor there is Share Investor which allows more control and trading options on the JSE.

• Unit Trusts: Unit trusts are a simple and convenient form of investment for the medium and long-term investor. When one invests in a unit trust, funds are pooled collectively and are managed by a team of professional fund managers. The fund managers then use this pool of money to invest in a wide range of asset classes which include bonds, equities and money market instruments.
• Retirement Annuities: Retirement annuities are an ideal way to save for retirement because a portion of the contributions may be tax deductible and investors cannot access their capital before they retire, unless in pre-defined circumstances. Furthermore, this investment is protected from creditors should one go insolvent.

According to an investment specialist within the FNB investment product team, investors have different objectives when they invest. If you are young and planning to invest for your retirement 30 years later, you might consider using growth-oriented equity funds that have traditionally delivered healthy returns over a longer period.

What about risk? The risk that a young investor can tolerate within his/her retirement savings plan depends on the balance of return versus risk.

“If we keep our retirement savings invested in safe, low-risk investments, we may earn so little that we will be economically marginalised in retirement. On the other hand, if we invest our funds in riskier assets that produce higher returns over the long run, we may end up losing sleep watching our portfolios fluctuate,” concludes Human.

Disclaimer: The contents of this article do not constitute investment or financial advice. Each individual is advised to seek independent financial advice from a suitably qualified expert, in order to determine their short and long term investment needs.