portfolio manager at PSG Wealth
We currently find ourselves in a market that hasn’t shown any real growth over the past five years and even the most optimistic investors are now starting to panic, especially those who have already retired.
With the cost of living rising rapidly, many pensioners are forced to increase their withdrawal rates to well above the recommended levels, in an environment that just hasn’t provided sufficient growth to sustain such high withdrawal rates these past few years.
Aside from comments from the retirees I work with daily, enough research has been done over the years to determine what retirees would have done differently, given the opportunity to start over. It will come as no surprise that most of them claimed that they would have saved more and would have obtained proper advice well before retirement, if they got a second chance.
Despite these observations, however, I still get the impression that most people don’t realise how important it is to save as much as possible before retirement, even when times are tough. Here are a few pointers that may help:
Control your expenses
Many individuals who find it difficult to make ends meet with their current income take on extra work to earn an additional income. Interestingly though, these individuals still struggle to save, even with a higher income. The key is to find out exactly what you are spending your money on, and the only way you’re going to do that, is by drafting a strict budget to monitor your expenses. Once you know what you’re spending your money on, you can control your expenses. One of the biggest reasons why South Africans are struggling to save, is because they live above their means. You need to buy cheaper and smarter. If you cannot afford a particular TV package, downgrade or cancel your subscription. Also, avoid any additional debts that may obstruct your road to financial freedom.
Make saving non-negotiable
The best advice I can offer, is to make saving a non-negotiable part of your routine, rather than a decision you have to consciously opt into every time. Set up a monthly debit order for a fixed deposit, unit trust or an endowment, and make sure the debit goes off right after pay day. This will, quite simply, leave less money available to spend, forcing you to live more frugally..
Claim your taxes
So many people make the mistake of overlooking the tax benefits offered by some savings products. Make sure that if you invest in a retirement product such as a retirement annuity, that you include those certificates with your tax submissions every year. You can deduct up to 27.5% (up to a maximum of R350 000) of the greater of your taxable income or remuneration per year by saving in a retirement product. Also use any tax returns paid back to you to contribute to your savings, whether it comes from your retirement annuity or unpaid medical claims.
Consider the future
It isn’t easy to save under current conditions, I know. But if you need a reminder about why this is critical, ask yourself whether you’d be able to live on an income of R1 780 a month? That’s the maximum allowable government pension grant for people over 60, which goes up by R20 for those over age 75. Learn from the mistakes of those who came before you. Don’t give away your power by living above your means. Challenge yourself by saving as much as you can to ensure that you can have a more comfortable and financially sound retirement.
