With any financial obligation, commitment, or investment you’ll probably get the advice to start or get it done sooner rather than later. Even though retirement seems a long way off, starting to save for it right away is vital. The number of South Africans who’ll be able to maintain their living standard after retirement is low. Estimates vary from 6-25% for a phase of life that could last 30 years.
Is it too late to start saving for retirement?
It’s never too late to start saving for your retirement. Even if you start a bit later - for example, in your 30s - you still have a significant number of working years ahead of you to put money into a retirement plan. Ultimately, anything you can save is better than nothing.
How do you calculate how much you need for retirement?
Once you start thinking about retirement, your first question is likely to be along the lines of “How much do I need to retire?”
In planning for retirement in South Africa, you need to make sure you have enough to achieve your goals and take care of your health. If your goal is to travel the world during your golden years, you shouldn't have to shelve those dreams due to a lack of funds. Start saving now so you can maintain the same quality of life, pay your bills, and enjoy whatever adventure you choose to pursue.
To get an estimate of how much you will need, use our free online retirement calculator. This calculator can give you valuable insight into how much you should be saving for your retirement.
How can I save for my retirement?
There are multiple ways you can save for retirement.
Employer Retirement Funds
Fewer companies offer retirement funds these days – currently less than half in the case of smaller businesses. If they have one, a monthly contribution is taken off your salary. With a pension fund, for example, you may take up to a maximum of one third of your savings in a cash lump sum when you retire.
This cash lump sum is taxable. The balance must be used to purchase an income/annuity, and the income/annuity is taxable. If your total retirement investment in the fund is less than R247,500, you’re not limited to taking only 1/3 of your savings as a lump sum. You can take the full amount as a cash lump sum, subject to tax.
With a provident fund, you may currently take the full fund value as a cash lump sum, subject to tax. You may then reinvest your after-tax lump sum.
If your employer doesn't offer a fund, you can start saving in a retirement annuity. Your retirement annuity is basically a personal pension plan. Your contributions are tax deductible from your income up to certain limits, and therefore decrease your taxable income. In addition to this, contributions to pension and provident funds are also tax deductible.
Tip for Retirement Saving
Find out exactly what your company fund offers. If there isn't one, talk to a professional and accredited financial adviser about the option of retirement annuities as a savings vehicle for retirement. And once you've started saving, keep going until you retire!
How much money do you need to start a retirement fund?
There’s no set amount of money required to start saving for your retirement. The most important thing is simply to start saving as soon as possible. It’s also critical to note that compound interest really starts working for you over time. The longer you’re in the market, the more growth potential for your capital.
Most of us don’t have a big lump sum to invest, but putting away smaller amounts regularly can be just as effective.
What happens to my retirement savings when I die?
As a member of a retirement fund, you may nominate beneficiaries to receive the benefits upon your death. The trustees of the fund (by law) have the discretion to pay your benefits to your dependants in a manner that the trustees deem fair and equitable. In the absence of any dependants, the benefits will be paid to the nominated beneficiaries.
How do I get started on planning for my retirement?
Learn while you earn rewards
Did you know you don't have to be an Old Mutual customer to earn rewards with us? Learn more about money matters, take part in fun quizzes and try our different calculators. Register here and start earning today.
Get the Old Mutual app
You can also download the Old Mutual app to track your rewards and to stay up to date with your policies. Visit the Apple App Store, Google Playstore (device-dependant) or Huawei App Gallery to get you started on your financial wellbeing journey.