Currently, South Africans can only withdraw or transfer their pension funds if they resign, retire or become unemployed. But recent conversations about allowing early access to a portion of retirement funds may have made people more aware of their retirement savings.
The proposed access has important implications, as for most South African income earners, their retirement savings and insurance benefits through their employer are often the only savings and insurance they have. Retirement funds are also the primary vehicle the government uses to incentivize retirement savings by making contributions tax deductible.
Join heated discussions with the Moneyweb community and get full access to our market indicators and data tools while supporting quality journalism.
R63/month or R630/year
You can cancel anytime.
Most earners are already saving very little and not enough for retirement. Only 6% of South Africans can retire with enough to maintain their standard of living. This is largely due to the widespread tendency to withdraw retirement savings when changing jobs to meet short-term financial needs and wants.
Covid-19 has highlighted the need for higher savings to guard against financial stress in emergencies and the growing retirement savings gap. If you misbehave, it can have serious long-term consequences for people who are already saving very little for retirement. People often find it difficult to plan ahead, especially with the financial challenges we face on a daily basis. Saving 15-20 percent of your monthly salary may seem like a stretch when you have to live from day to day, but saving now will definitely pay off later.
Growing your savings and having enough money for a comfortable retirement is part of your path to success. By continually analyzing and matching your investment, you can ensure you have what you need once you retire and make your dreams come true.
It’s the little sacrifices that count when you’re young to make your retirement goals a reality. By having and nurturing a good relationship with money and ensuring that you prefer to focus on saving for tomorrow rather than seeking instant gratification today, you can achieve your financial goals and build your portfolio instead of watching money flow in and out of. your account.
Your medium and long-term savings objectives, together with your risk profile, will largely determine the type of investment that will best suit your needs. A qualified financial advisor will not only be able to help you with a committed savings strategy, but also advise you on how you can use tax breaks on capital gains and compound interest to minimize the taxes payable on your investment.
Compound interest is one of the most important concepts when it comes to managing your finances.
It is the crux of any investment in the medium and long term, allowing you to earn interest on interest, almost like a snowball effect, accelerating your profits.
Each investment trip is unique. To ensure you have enough capital to finance your retirement, you should consider several investment options.
By choosing a linked investment account, you can save your money for five years or more by investing a regular amount with an optional lump sum. It gives you the freedom to choose how you want to invest and what you want to invest in. It gives you the power to save your money to better meet your needs. Whether it’s for your children’s education, to save money, or for a vacation, the longer you leave it, the more it grows. You establish the terms by tailoring the contract to your needs.
If you prefer a committed and conservative approach to saving, a retirement annuity is the right product for you. Governed by legislation and designed primarily to help you increase your retirement money, it is a long-term savings plan that allows you to withdraw a lump sum and purchase a monthly income after age 55. A retirement annuity not only helps you save and invest, but it also comes with tax benefits.
An endowment policy is life insurance that pays a lump sum after a specified term or in the event of death. Although restricted by certain rules, this medium to long term policy is a low risk savings strategy that allows you to leave the legacy of your choice when deciding how you want to invest your money. It offers estate planning and tax benefits, especially if you are in a higher income bracket.
Retirement can be a real challenge if not planned properly. Fluctuating interest rates, inflation, and taxes can affect the growth of your savings. By making regular monthly payments and investing a lump sum in an investment policy, you can ensure that you have enough money to turn your retirement dreams into reality.
Janine Horn is a financial advisor for Momentum.