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Category Retirement
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Create a sustainable income for your retirement

03 February 2014 Derick Ferreira, Old Mutual
Derick Ferreira, head of product management at Old Mutual.

Derick Ferreira, head of product management at Old Mutual.

We all want to retire comfortably. That means we need to ensure we have a sustainable income to last us through to our final days. According to the 2013 Old Mutual Retirement Monitor, 85% of respondents felt that not having enough money to retire was their greatest retirement concern - and 39% of senior citizens reckon they will probably have to work after retirement age to be able to save enough.

"There are still far too many South Africans who will find themselves out of pocket long before they die,” says Derick Ferreira, head of product management at Old Mutual. "This is because they start too late, just aren’t saving enough or are using the wrong vehicles in which to save.”
 
We are living longer and economic factors such as the rising price of electricity, petrol, education and food are constant reminders of how increasingly difficult it is to make ends meet today, let alone save for the future.
 
Ferreira adds that often people reach retirement age before realising that there just isn’t enough to carry them through for another 20 to 30 years. This means they must continue to work for a number of years or lower their standard of living, or both.

What is enough?
 
"If you retire at the age of 65, you need to accumulate between 10 and 14 times your annual salary until you retire,” says Ferreira. "This should help you to have a retirement income that is at least 75% of your salary.”
 
For example, if you are 25 years old, earning R10 000 a month and start saving R1 200 a month from today, you will have accumulated capital equal to 10 times your annual salary by the age of 65 (taking inflation and increases into account, both at 5%). However, if you are 45 years old, you need to put away R3 600 a month to reach the same multiple by the age of 65.

5 Steps to saving for retirement
 
Step 1 – Start today. It’s never too late. If you find it difficult to spare an extra cent, think of where you can cut down. A DSTV subscription costs over R600 a month. If that money is saved with a potential return of 8% for the next 20 years, you could save R550 000.
Step 2 – When you get your salary increase, increase your premiums.
Step 3 – When you get a new job or promotion, increase your premiums again.
Step 4 – When you get your bonus, inject a lump sum into your retirement.
Step 5 – With the new tax year looming, take full advantage of the tax benefits for saving for your retirement.

Choose the right retirement income solution
 
This can seem tricky. Many people outlive their retirement savings because they choose a living annuity with excessive draw-down rates and use too much of their savings in the early years of their retirement.
 
Current thinking suggests that if you expect to live longer than the age of 80, you might be better off buying a guaranteed annuity that increases over time with inflation. Although the initial income may be lower than what you could draw down from a living annuity, it may be higher at a later stage in life if it increases with inflation. You also have the added benefit of a certainty of income for as long as you live.
 
"Due to increasingly sophisticated retirement products, it is vital to speak to your financial adviser about the best way to plan for your retirement, no matter which life stage you are currently in,” concludes Ferreira.
 
Quick Polls

QUESTION

Is relying on a primary home as a source of retirement equity still a viable strategy for South Africans?

ANSWER

Maybe, depends on location
No, too unpredictable
Not sure, 50-50
Yes, always
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