Get serious about retirement saving
Jo-Anne Bailey, Sales Director & Country Manager for Africa at Franklin Templeton Investments.
We all know that feeling at the end of the month when we are counting the days until our salary reflects in our account. Many of us will also relate to the frustration of that salary being a few days later than expected. Now imagine if that salary never came, and continued to not come for twenty to thirty years. This is not a nightmare, but a reality we will all face when we retire.
The fact is that we are all living longer. Our retirement may last as long as the time we spent building up our nest egg! This places additional strain on retirement savings and makes it necessary to plan carefully for the future. While this may sound a bit daunting, if you break it down into small steps, you will see that it is possible to become financially independent without compromising on your basic values.
First off, it is critical that you start saving as early as possible. Compound interest accumulates over time. Therefore, if you start your retirement investment earlier, you give yourself more time for the interest on your nest egg to grow. To illustrate, an average annual inflation rate of 6% means that if your monthly expenses are R30 000 today and you are 40 years of age, your expenses will increase to over R95 000 per month by the time you reach age 60. Even during retirement, the impact of inflation will mean that your expenses keep growing every year and will touch over R170 000 at 70 years and, by the time you are 80 years old, will amount to more than R308 500 per month.
How do you counter the risk of such massive growth? By giving your money the opportunity to grow and by saving while you earn. For example, in order to achieve the R10 million required as a retirement investment, you need to secure an inflation-equivalent pension of R50 000 at age 65. Assuming annual returns of 10%, if you start investing towards this lump sum at age 25, you will only need to start by putting away R1568 per month. If you wait 10 years and only start investing at age 35, your starting monthly investment jumps to R4387! Delay your start date by another 10 years until you're 45, and you can expect to start out investing R13,060 per month.
No matter when you start, you need to be realistic that, in order to have a prosperous retirement, your money is going to have to work harder. This can be said of any life goal, from education, marriage, taking a vacation or buying your dream home.
How do you get your money to grow? The key doesn’t lie in saving, but in investing. Your money will only grow if it is properly investing and linked to a clearly defined investment plan.
Simply put, you need to set yourself investment goals, and separate each of your investments so that they work towards that goal, with their success monitored until that goal is achieved. Thankfully, you don’t need to do this on your own. Just as you would use a specialist like a wedding planner, personal trainer, or dietician to reach your personal goals, so you have the option of approaching a financial planner. They will help you determine how best to invest your money, channeling it into a diversified portfolio that includes both equity and debt.
While many of us know that ongoing investment is the best way to secure a prosperous retirement, we sometimes get stuck at the hurdle of having enough money to invest in the first place. Nothing could be more important than your future, so control your online spending, pay off expensive loans, save on your insurance and investigate your tax saving options. As Warren Buffet famously said, “Spend what is left after saving rather than save what is left after spending.”
While we are currently living through tough financial times, the market does tend to right itself in the long term. Even if you need to make a few sacrifices, the sooner you start investing, the larger your retirement rewards will be. It requires discipline, but the pool of assets you will have at the end of your journey will be worth it.
