G and S Insurance Consultants

5 RETIREMENT MISTAKES PEOPLE MAKE

Many South Africans are not saving for retirement. We must admit that taxes and the cost of living are high, but the main reason that many people do not save for retirement is that they simply do not prioritise putting money away for retirement.

These are 5 biggest mistakes outlined when looking at retirement:

1.OTHER COSTS TAKE PRIORITY OVER RETIREMENT

Living in South Africa can be expensive, but many South Africans invest in the largest house in the nicest area’s they can afford, and not yet investing anywhere near enough into their retirement plans. Lifestyles gradually become more expensive for no reason, as they earn more. An increasing amount of expenses are non-negotiable, while retirement is being neglected.

2. AMOUNT NEEDED TO RETIRE  NO ONE UNDERSTANDS HOW MUCH THEY NEED TO SAVE

Just like saving towards any other goals, it’s very easy to take out a retirement annuity or contribute to your employer’s fund with the hopes that your retirement is covered. But every person’s retirement needs are different, and should steps be taken to seek out a financial adviser who can assist in making sure that you are saving enough each month towards your retirement.

3. STARTING TOO LATE

The younger you start saving the easier it will be to reach your retirement goals.

Yes, earning your first salary and the freedom that goes with it is exciting. It’s difficult starting to save as retirement seems so far away. But the truth is that it gets harder to save the older you get as new expenses like owning your first car or home are bound to come into play. Not to mention having children and the costs of education that comes with it. Thus, starting later in life you will have to put away more to reach your retirement goals.

4. THINKING THAT A RETIREMENT FUND IS SUFFICIENT

Yes, contributing to a company fund will ensure available funds at retirement, but it does not secure your future. Although you can save up to a tax-deductible 22.5% of your gross non-retirement funding income into a retirement annuity or corporate fund, other investment options are also available when planning for retirement.

Included in these investments are:

Tax-free Savings Accounts: They don’t attract tax on the growth of the capital if the annual savings are below R33,000 or R500,000 in a lifetime.
Unit Trusts: Which can offer greater returns. Retirement funds do have lower risks, but no one should be put off looking at higher risk investments.

5. WHEN CHANGING EMPLOYERS, FUNDS ARE WITHDRAWN INSTEAD OF REINVESTED

When leaving a company where you have contributed monthly to a fund, the cash-in option is available (minus the tax). Many young individuals see this as a bonus, and use these savings either on clothes, travelling or even as a deposit on a house or car, instead of preserving these savings for retirement.

Here are some of the options to look at when changing employers:

  • Put the capital into a preservation fund – this is a retirement fund that preserves the benefits accrued.
  • Transfer the money to a retirement annuity.
  • Transfer the money to your next employer’s pension fund.

Retirement planning is a critical expense.

You may see it now as an unaffordable extra or as a distant possibility, but it will become an urgent priority much sooner than you may think. So, start saving early and earn enough to retire more securely later in life.

If you don’t know how and where to start, our consultants are more than willing to assist you. Please contact G and S Insurance Consultants to assist you in building a better retirement.