Life happens: Nandi’s story:
When Nandi* and her husband found themselves in the unexpected, but happy situation of having two children in their late 20’s, she decided to give up her teaching job to be a full-time mom. Now at 50, with the kids having flown the nest, she has returned to teaching, but wants to save for a meaningful pension so she and her husband can travel the world when they both decide to retire.
Changing priorities: John’s story:
At the age of 28, John*, had a successful office renovation business. He never bothered to save for retirement because he enjoyed his job and had all his spare cash invested in a house. He expected to work in the business until his sixties and then sell it. But by the age of 50 he realized he did not want to continue working at the pace he had done earlier in his life. In fact, he wanted to explore other paths in life that bought him more personal satisfaction. He also realised his business was under pressure from newer competitors and that he would not be able to sell it for what he planned. So, he needed to rethink his retirement plans.
Finding a way starts with getting the right advice. These are both typical cases of ordinary working people trying to figure out a retirement plan later in life. You can be certain that life changes for all of us along the way. Research by Liberty shows that only 31% of people aged between 30 and 35 have established a proper savings plan. By the ages of 45-49 this figure jumps to 63%. This shows that South Africans become financially wiser as they get older, but it also indicates that many South Africans are setting up their savings plan late in life.
The good news is that you can start saving for retirement at any time and for many out there, who find themselves in similar situations to these two people. There are many ways to approach this, but speaking to a financial adviser would be a good start.
“In both these cases the reality is that the timeframe for saving is dramatically shortened, so there’s a need to save as much as 30%, or more, of your earnings every month if you can,” says Liberty financial adviser, Sheila-ann Robey, Certified Financial Planner.
“At later stages in life many people find they are in established jobs, the kids have grown up and home payments maybe somewhat less. So, the ability to find extra cash is really possible if you look hard enough at your spending.”
There is also the important component of motivation: “To save diligently like this you should keep reminding yourself of the retirement you want. Maybe you just want to relax, maybe you want to travel, or even pursue a passion project. Work towards these dreams by putting money away. Make it your reality in the present.”
The advantages of retirement saving
It’s important to realize that saving using retirement products has real advantages compared to other types of savings vehicles.
Nosipho Nhleko, Liberty Lead Specialist for Retail Investment Proposition, says saving in an approved retirement fund such as a Retirement Annuity (RA) gives you significant tax breaks - your contributions are tax deductible within certain generous limits.
Additionally, your money will grow tax-free in the RA and when you retire, up to R550,000 of the lump sum you take may be tax free with the balance of the lump sum taxed in terms of preferential tax tables. Your annuities or retirement income will be taxable at your marginal tax rate in the same way that your current salary is taxed.
RAs allow you to boost your savings above the amount you contribute towards the pension or provident fund you have with your employer. There are no limits to what you can contribute.
Where to start
Getting financial advice will help immensely, because everybody’s situation is unique. As the two stories at the beginning of this article show, despite our vastly different life situations and ambitions, we all need a retirement plan. Of course, retirement is also different for everyone, despite the financial instruments being similar. You can still achieve your dreams even if it feels like it is too late in life.
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