This is according to Steven Nathan, the CEO of 10X Investments, who says it is essential that South Africans understand the importance of saving for retirement. “The earlier someone starts saving for retirement, the better. In order to achieve a comfortable retirement, however, it is crucial that people understand how retirement funds work and what they can do to ensure that they have enough money when they retire.”
He says that important questions that everyone should always ask are; How much money do I need to save to have the same standard of living in retirement? Am I saving enough? Am I on track? Am I saving the right way?
“Most of us confront these questions in our retirement planning,” explains Nathan. “By understanding the answers to these, you will be able to make informed investment decisions and build realistic expectations about your retirement.”
Retirement funds are a great way to ensure that you are putting away enough money to help sustain your standard of living during your retirement years.
A retirement fund is effective because it offers a disciplined savings environment, with automatic monthly contributions and regulatory oversight. It also is efficient because it offers significant tax incentives not available to other investment (unit trusts, endowments etc.).
Over a working life, these tax benefits can increase your retirement investment by around 30%. All the contributions you make to your annuity are tax deductible; this means that you claim the money you transfer into your annuity back from tax. The interest that your investment generates over the years is also tax-free.
What are some important considerations for saving for your retirement?
1. Start to save early in your life
It is always a good thing to start saving for retirement as soon as you receive your first pay cheque. When you start saving during your twenties, your money has about forty years to grow and earn interest before you retire. On the other hand, if you start saving when you are in your forties, your money will only have twenty years to grow and you will lose out on a lot of interest.
2. Determine your retirement goals
As a start, you must calculate how much money you will need to retire comfortably and also how much you need to save on a monthly basis to get you there. It is also a good idea to track your progress at least once a year to see where you stand and if you will attain your retirement goal.
You can do this with the help of online quality retirement calculators, one such calculator can be found at www.10x.co.za. This will tell you exactly where you stand and what you can do to improve your retirement nest.
3. Put enough money away
It is important to save at least 15% of your pay for about 40 years, in order to build a healthy retirement pot. If you only started saving while in your thirties or forties, you may have to increase your monthly contributions to make up for the lost time.
4. Know what you are spending on fees
Although retirement funds have the potential to be cost-efficient, many are expensive. It is very important that you know how much you are paying in investment fees. Investment companies charge fees for advice, administration and investment management and when you pay more than 1% per month on fees, your investment will significantly reduce. The more fees you pay, the less you will get out of your savings when you retire.
5. Choose a simple and transparent retirement investment product
Rather opt to buy a simple and clear retirement product instead of the typical complex and unclear policies. A simple, transparent solution works in your favour as it empowers you to understand the fund, make informed decisions and have a cost effective savings vehicle.
Do not be afraid to ask your fund manager about any costs that could possibly be reducing your retirement profits. If they have your best interests at heart, they will reveal this information happily.
6. Never cash in your retirement savings when you change jobs
You should never withdraw the cash from your retirement savings when you change jobs. If you spend the money you saved up, you will lose out on all the money you have collected and also the interest you could have generated.
“By knowing more, investors lose less on their retirement,” concludes Nathan.