According to the South African National Treasury, 94% of the population have not saved enough money to retire comfortably. This happens because people do not know enough about the retirement saving industry and tend to make investment mistakes on their path towards freedom from the workforce. It is essential that South Africans understand the importance of saving, in order to save enough money and maintain the same standard of living when they are in their golden years. So ask yourself this crucial question: Am I saving enough for retirement?
Most of us have conflicting priorities when it comes to affording our current lifestyle and saving for our future. Financial advisors suggest that you take a pessimistic approach to building your nest egg: try to plan for the worst and be positively surprised. This will help you avoid the risk of accumulating debt in later years. If you have started saving as soon as you received your first pay cheque, it is recommended that you try to save 16% of your gross income in order to ensure that you have enough money saved up for your golden years. However, if you have only started saving closer to the legal age of retirement, here are a few tips to help you increase your nest egg:
Determine your retirement goals
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 goal.
Save your money
If you have started saving later in life, it is recommended that you save 27.5% of your monthly salary in order to have a healthy nest egg. However, your monthly contributions may need to be increased depending on your retirement goals.
Choose a simple and transparent plan
Opting for a clear and simple plan instead of the typical complex policies works in your favour as it empowers you to understand the fund, have a cost-effective savings vehicle and make informed decisions. When choosing a retirement plan, remember to ask your fund manager about any costs that could possibly reduce your profits. While retirement funds have the potential to be cost-effective, many are expensive. Therefore, it is important that you know how much you are paying in investment fees. The more fees you pay, the less you will get out of your savings when you retire.
Once you retire, you generally need less income than before. This is because some of your expenses (like travelling to work, etc) fall away. You will also pay less tax after the age of 65. For those who are already retired and have little chance of generating income, you need to reduce your expenses and ensure that your remaining investments are correctly structured.