Ensuring a comfortable retirement is quite simple: you must have enough capital so that your money will last until you die.
But no one knows how long they will live, we are living longer than people did in previous generations, and women tend to outlive men by 5 or 6 years. So apart from anything else, a woman needs to have more money accumulated at retirement, compared to a man her own age.
Add inflation to the mix – at a rate of 5%, the buying power of money is halved every 15 years – and one starts to understand why so many people just don’t seem to have enough money in old age.
You may not want to stop working at 60 or 65, but wouldn’t it be great to have a pot of money at that age that can provide you with the luxury of choice? You could decide to work part-time, open a small business, follow your passion and start a new hobby or even travel a bit.
That nest egg will ensure that you are secure, particularly as the years roll by and your ability to work dwindles.
So start planning today to ensure that retirement isn’t a stage that’s feared, but the start of a new and exciting life stage. Some experts suggest that you should have 10X your final salary as capital at retirement, to be comfortable. This may seem daunting, but don’t be put off.
Make your retirement investment a priority and accumulate as much as you can within your budget. It’s all about balancing your needs of today with those of tomorrow.
10 tips for a stress-free retirement, by Sylvia Walker
1. Start as early as possible and aim to invest 12 -15% of your income every month. If you start doing this from your first salary, it will automatically be part of your monthly budget. If you haven’t started, then start now, and even if you can’t set 12% of your income aside, set aside what you can afford to, but be committed to investing.
2. If you have the option to join a pension or provident fund at work, do it. It’s the ultimate “pay yourself first” situation and even better if your employer contributes as well. A big benefit is that contributions to a pension or provident funds (by you and your employer) and retirement annuities are tax-deductible up to 27.5% of your taxable income with a maximum of R350 000 per year.
3. Don’t cash your pension or provident fund when you leave the employer. Preserve this money and leave it to grow until you reach retirement age.
4. Retirement annuities are a personal pension fund and a great tax-efficient way to save for retirement and are safe from creditors.
5. Make sure that your money is invested in funds that beat inflation, and keep a close eye on your investment performance.
6. If you receive a salary increase or a bonus, make it a habit to automatically put some of that money aside towards retirement.
7. Don’t rely on your residential property to be your retirement nest egg. You need to live somewhere once retired, and if you will need to sell the house to generate capital, where will you live?
8. Plan to retire debt-free.
9. Don’t rely on your partner’s retirement provision only. You may outlive him so have your own retirement plan.
10. Successful retirement planning is all about getting the numbers right. Consult a professional financial planner to assist and guide you in making the right investment decisions to achieve your retirement goals.
Accumulating a nest egg takes time and good investment decisions. The sooner you start the better, so get going today!
This article was written by Sylvia Walker, financial planner, speaker, and author of smartwoman. www.sylviawalker.co.za
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