Did you know, according to the Sanlam Benchmark survey, “only 8% of South Africans are able to retire with sufficient savings to provide an income at a replacement ratio of 75%.” ~ Moneyweb
Many of us think retirement is limited to a pension package at work, and not putting anything aside themselves. Doing this, means we miss months of saving that could be contributing to our retirement nest egg. In fact, Fidelity suggests we should have the following retirement savings over time:
- 30 years – Your annual salary saved
- 40 years – 3x your salary
- 50 years – 6x your salary
- 60 years – 8x your salary
While not all of us could safely say we’ve saved at those percentages, it’s not too late to work today those numbers.
Why We Struggle To Save For Retirement
There are a number of reasons why we have such a low number of comfortable retirees. Often, the younger generation is not taught enough about saving in their formative years. As a result, their savings journeys usually start late.
Some other reasons may include:
- Retirement feels far and people think they have enough time to start saving.
- Retirement isn’t an immediate priority.
- Retirement (or saving) doesn’t seem possible, due to finances.
- The current employer doesn’t offer a pension fund, so you never start/continue one.
- The pension fund was not moved/continued when changing jobs.
Why Save for Retirement
Retirement is supposed to be the phase in our lives where we no longer “work” corporate jobs to earn an income. Regardless of this loss of income, we should still be able to maintain our livelihood and remain comfortable.
As per those savings goals from Fidelity, by retirement, we should have enough money put away to pay ourselves a “salary” from our retirement fund.
Benefits of Retirement:
- Lifestyle: You can live the retirement lifestyle you want to live and pursue your much freely.
- Time: You have enough time to enjoy more from life while making your money work for you.
- Non-employment benefits: You’ll have more money to use since you won’t have employment-related expenses like travel costs. You also gain social benefits like pension benefits, helping reduce living expenses.
- Unexpected Finances: You should be able to cover medical expenses, general car and household maintenance, and family financial issues.
Start Saving For Retirement, Today
Once you start seeing the benefits of retirement, you shouldn’t have to wonder why you should save towards it. Whether you’re reading this as a young employee, self-employed, or someone close to retirement, start by saving today.
Set goals along the way
Every blog related to money and saving all say the same thing; set savings goals. Fidelity’s guide goes so far as to create a savings guideline to help you get started. They base it on the following four factors:
- Yearly Savings Rate: How much do you want to save each year? How much would you have to save each year to reach your retirement goal?
- Milestones: Setpoints in your saving journey that you want to reach. Your first R500, your first R2000 etc.
- Income Replacement Rate: Calculate how much you use every month of your income. How much would you need to have during your retirement age to carry on this lifestyle? How much would you need to save to be able to “pay yourself a salary” from your retirement fund?
- Sustainable Withdrawal Rate: How much would you need to withdraw and not run out of money, or risk changing your lifestyle too much?
The goal is to save as much as you can now, even starting small and growing is better than not at all.
Use Other Savings Options
We are thankfully not limited to ways we can start building retirement funds. The best thing to do is to look into your own situation to see what works best for you.
Pay Yourself First
Set an amount you save every month and make it one of your “debit” orders coming off automatically. You won’t think about it and you know money is being put aside every month.
Everyone seems to latch on to this one too. When we say spend less, what we really mean is cut out any unnecessary expenses. Make your own lunch rather than spending money on takeaways, for example.
Join a Savings Group/Stokvel
The idea of a savings group or stokvel is to help individuals with limited funds, generate a large amount of money in a short amount of time. With the group/stokvel holding each other accountable, building up funds to use towards your retirement won’t be that difficult
NB: Saving is a sacrifice, but it’s a sacrifice that is in your best interest. Are you going to start saving for retirement today?
United African Stokvel is always looking for ways to help our members. This blog is intended to help our members think about their finances in a different way. This information is not intended to be a substitute for a financial advisor, you should consult with a financial advisor before relying on this information.