 |
 |
 |
 |
 |
 | ||||
Unit trusts in double troubl... An 'afterthought' with a kick... JSE computer settlements may reduce ta... Where there's a will, there's a way to a... Financial regulation laggin... Investment vehicle for the well-heele... UNIT TRUSTS:Sanlam Income Fun... Does windfall make investor a provisiona... Cover for those silly mistakes that cos... The ins and outs of personal liability c... R11 000 demutualisation bonus for policy... If banks let you down, vote with your fe... SA taxman casts his net towards foreign ... Building a nest egg for your old ag... Avoid past performance trap... The truth behind all those figure... |
Don't let the sun set on your golden years
Inadequate financial planning could make retirement a misery, writes LUCIENNE FILD
If you regard being a member of your company's pension or provident fund as sufficient retirement planning, think again. You might be making the biggest mistake of your life - one you will regret when you retire and are forced to drop your standard of living because you didn't plan ahead. Independent financial adviser Dave Crawford stresses that the earlier you start, the more chance you have of securing a reasonable retirement for yourself. "The more you delay, the more difficult it becomes because of competing commitments, such as a mortgage bond, children's education and others."
So how much should you be saving? This depends on age and financial circumstances. You must also be clear on how you want to spend your golden years - if, say, you want to travel the world on a luxury liner you must make sure now you'll have the money to do so then. Vernon Cresswell, director of financial consultancy Fincorp, believes that everyone should be able to hold on to at least some of their hard-earned monthly income, and to multiply this money by investing wisely. Take this example: If your long-term objective is to have a R500 000 nest egg by the time you're 65, Cresswell says you will have to make the following monthly savings to achieve this (a 12% annual compounded growth rate is assumed). If you're 25: All you have to do is invest R54 a month to get your R500 000 at age 65. Bear in mind, though, that a 12% per year compounded return may not be sustainable for this long a time. If you're 35: If you invest a monthly R172 you will reach the R500 000 mark in 30 years. Consider this as a bill that must be paid every month without exception. And if you can invest more, do so by all means. If you're 45: You need to invest R578 a month to reach your R500 000 goal. If you're 55: If you've reached this age and you haven't yet planned for retirement at age 65, you have a lot of financial patching to do! The problem is you have probably left things too late. You will need to invest a hefty R2 374 each month.
This is for a R500 000 nest egg - not enough for a comfy retirement. Barry McMillan, senior consultant: market development of Sanlam Group Benefits, says pension fund members are retiring earlier than ever before which puts further pressure on their financial resources. He says early retirement is often a problem for members of defined contribution retirement funds, because they buy pensions that give them the greatest immediate benefit. McMillan cites the example of a 55-year-old man who retires earning R150 000 a year. He has R1-million to buy a pension, and on face value, this seems to be more than adequate. At current annuity rates he can buy a pension of around R11 900 a month. With reduced expenses it seems he is now better off than before retirement. The pension is paid for as long as he lives, but the problem is that this man could live for another 25 or 30 years. Assuming an average inflation rate of 10% over the next 25 years, at 80 this man will be receiving a pension with a real value of around R1 100 a month! It's crucial to structure your investments in such a way that inflation-beating capital growth is achieved. Jenny Gordon, senior legal adviser with Old Mutual, says inflation coupled with a declining purchasing power of the rand is a retiree's number one enemy. Using 72 as a yardstick of pensioners' average life expectancy, at an annual inflation rate of 7%, the purchasing power of the rand will halve in value every 10 years. "An income which was sufficient during the first year of retirement could end up with a quarter of the purchasing power in the last year of retirement," she says.
Based on a survey conducted by Old Mutual Actuaries and Consultants in 1996, if your projected retirement capital is less than nine times your final annual salary at age 65, or 10 times your final annual salary at age 60, you need to aggressively make further provisions for retirement. Gordon suggests seeing a reputable financial adviser.
|
