Financial planning for the under-30s
Planning for retirement
Planning for retirement – why you should start ASAP
By Wouter Fourie CFP®
FPI Financial Planner of the Year 2015/2016
Congratulations! By all statistical calculations, you will probably live much longer than your parents and grandparents, thanks in part to advances in medical science.
The bad news is that you will have to prepare for a much longer life in retirement and make sure that your savings can look after you during that time.
Unfortunately, most South Africans do not adequately prepare for retirement. By some estimates, only 6% of South Africans are financially prepared for retirement. Despite regular warnings to save for their future, people give many reasons for not saving yet. These include the high cost of living, the seemingly long time before retirement or simply that other expenses take precedence.
Unfortunately, old age creeps up on all of us and before you know it you are within a decade of retirement, when you will have all the time in the world, but no steady salary.
But if you are young, you have a potentially long time to save for retirement. Consider using these steps to make sure that you are ready for a relaxing and truly enjoyable life after retirement.
1. Invest in retirement annuities
Retirement annuities (RA) are not an investment themselves, but rather a regulated way of investing for your retirement in different underlying funds. Stated differently, an RA is a way of investing your money that gives you certain benefits, because you are investing for your retirement.
With a retirement annuity, you can contribute up to 27.5% of your taxable income to an RA and then deduct that payment from the income that you pay tax on. You can also withdraw up to R500 000 tax free when you reach 55 years or older.
By investing in RAs, you not only save money for retirement, but you also save the tax that you would’ve paid on that money. This immediately gives your savings a boost.
2. Invest in tax free savings
Tax free savings accounts allow you to invest up to R30 000 per year and R500 000 in your lifetime in a savings account where the interest you earn is tax free.
This form of saving not only gives you the additional growth equal to the tax that you save, but it is often invested off shore, giving you exposure to international growth as well.
Try to get to your cap of R500 000 savings as soon as possible, but do not exceed your R30 000 annual allowance, otherwise you will pay penalties.
3. Get help
You simply have to Google retirement planning and investment advice to see how many different opinions and advice there are. This is not only confusing, but it does not consider your specific needs, retirement goals and the life stage that you are in.
In contrast, a CERTIFIED FINANCIAL PLANNER® receives strict post-graduate training and he or she is governed by the professional and ethical rules of the Financial Planning Institute (FPI). This means that you can trust them to give you the best possible advice and guide you along each step.
With your investments taken care off and possibly many more years to plan for retirement, you can rest assured that your golden years will indeed be, well, golden!