The biggest problem, for most people in retirement, is that the step down from what they were earning to what their current income is per month is too steep.
It is said that the average South African takes a 75% step down in income when they retire. The correct or ideal percentage should only be 25%.
Some more facts and figures
- According to Old Mutual’s retirement reform research 2007, fewer than 6 out of every 10 South Africans will have saved sufficiently for their retirement.
- According to Stanlib’s July 2007 Economic Report 75.9% of disposable income is financing household debt, the highest level of debt recorded in the history of South Africa. Net personal savings has reached the lowest level recorded since 1946!
- 99% of South African annuity incomes provide income of less than R8000 per month.
- People don’t plan on an annual increase in retirement, so 90% of retirement income annuities in South Africa have no escalation built in for annual inflation.
The River of life
The River of Life diagram will give you a good indication of what your debt and savings ratios look like at different times in your life. Click in each corner of the diagram.
Planning correctly for the milestones in your life will ensure that you get the maximum enjoyment out of that time.
What's the Solution?
Planning properly and starting your savings plan early are two ways to prepare for (and look forward to) your retirement!
First step is to talk to your financial adviser. He or she will assess your financial situation and determine how much you need to save for retirement. The adviser will take into consideration your age, savings patterns, time period (how many years before you retire) and your risk profile. Based on all this information you will be presented with a number of retirement savings options. These may include:
- A pension fund.
- A provident fund.
- A Retirement Annuity.
- Endowments (Some tax saving).
- Other saving such as a fixed deposit.
- Or a combination of the above.
Here are a few questions to ask your financial adviser when doing your retirement planning:
- What monthly amount do I need to live on when I've retired?
- What will be the impact of inflation – both before and after I retire – on my savings?
- There will be increased medical costs in retirement – how do I budget for them?
- I could live a long time – how can I ensure I have enough money to see me through?
- How can I make sure I carry as little debt as possible into retirement?
If you would like to benefit from a Retirement workshop please call us on 086 717 7707.