When should I start thinking about my retirement?

With any financial obligation, commitment or investment you’ll probably get the advice to start or get it done sooner rather than later. And 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 to 25 percent for a phase of life that can last 30 years.

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, when you retire, you may take up to a maximum of one third of your savings in a cash lump sum.

This cash lump sum is taxable. The balance must be used to purchase an income/annuity, the income/annuity is taxable. If your total retirement investment in the fund is less than R247 500 you are 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 and may reinvest your after tax lump sum.

If your employer doesn't offer a fund, you can start saving in a retirement annuity, which 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.

Compound interest really starts working for you over time. The longer you are 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.

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.

Find out exactly what your company fund offers. If there isn't one, discuss the option of retirement annuities as a savings vehicle for retirement with a professional and accredited financial adviser. And once you've started saving, keep going until you retire.

This is one early start that will offer great rewards.

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