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South Africans only think about retirement saving later in life

04 July 2022 Liberty
Nosipho Nhleko, Lead Specialist, Investment Propositions at Liberty

Nosipho Nhleko, Lead Specialist, Investment Propositions at Liberty

Research by Liberty shows that many working South African's only start to think about saving for retirement once they are over the age of 40, and are therefore not benefitting from the tax advantages that will help them build a substantial nest egg of money for their retirement.

Contributing to a retirement fund allows you to save a large chunk of your earnings 'tax free' every year. This means that you will be entitled to claim a tax deduction for your contributions (subject to specified limits) and your money will grow 'tax-free' in the retirement fund itself. For example, * if you have taxable income of R500 000 a year and you contribute R100 000 to a retirement fund, you're only taxed on the remaining R400 000. The R100,000 will grow 'tax-free' while in the retirement fund. An incredible saving.

Once you retire, up to R500,000 of the lump sum taken may be tax-free, with the balance of your lump sum taxed in terms of preferential tax tables. Any annuities you take at retirement will be taxable at your marginal tax rate. A further saving.

Retirement funds such as retirement annuity funds ('RAs'), are attractive retirement vehicles in that they are portable (i.e. not tied to an employer), have no contribution limits and your retirement benefits can be accessed from the age of 55.

"Having a comfortable retirement or being in a position to live life the way you want, at a certain age should rate as an important life goal. But somehow many South Africans are not getting this until they are older," says Nosipho Nhleko - Lead Specialist, Investment Propositions at Liberty.

Only 31% of people between 30-35 have established a proper retirement savings plan, according to our research findings conducted in an effort to understand retirement trends from an insurer perspective.

By the ages of 45-49 this figure jumps from 31% to 63%. So South Africans become financially wiser as they get older, but it also indicates that too many South Africans are setting up their savings plan too late.

"The fact is, the earlier a person starts saving, the easier it is and the more they can put away for a comfortable retirement."

Although RAs remain one of the popular options, our research found that at least 59% of South Africans perceive RA's as expensive.

In terms of the racial breakdown of South Africans with an RA, up to 64% of Indian people have an RA, followed by 58% of white people, 51% of coloured people and only 47% of black people.

Nhleko says, "it really is a perception because even small amounts can be contributed monthly to a retirement fund, which can benefit from tax savings."

"Every circumstance is different and partnering with a financial adviser is the best way to plan your personal financial journey. The sooner you start, the better. You may well be saving yourself quite a bit of money in the long-term while securing the life you aspire to if you start early," says Nhleko

 

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