Financial freedom is an important aspect of your wellbeing at every stage of your life, but more so during your retirement years. Indeed, one of the main reasons behind all our planning and saving is this realisation; that a time is coming when age will make it difficult for us to continue working.
It is everyone’s dream to retire with enough money to maintain the living standards they had during their working years. The sad reality, however, is that only 6% of South Africans will be able to retire with enough money to sustain their later years, according to financial services firm Alexander Forbes.
This percentage paints a sobering picture of the country’s retirement savings landscape. According to 10X Investments’ 2018 South African Retirement Reality Report, of 1 million South Africans surveyed, 62% of them did not have any form of retirement savings or plan, and of those who did, 53% did not know how much their pension was worth.
While many financial and retirement experts say that the ideal time to start saving for one’s retirement should begin from one’s very first salary, this is in reality almost impossible for a significant percentage of South Africa’s working population.
With the life expectancy of South Africans and the rest of the world steadily increasing with each passing year, there has never been a more important time to scrutinise one’s retirement plan than right now.
In the past, 50 years old was the ideal age to start thinking about retirement, a combination of factors have changed this not only in South Africa but globally. Advancements in medicine and disease treatment, as well as greater knowledge about healthier lifestyles, have led to significantly increasing life expectancy in most countries globally. This has invariably meant that the average retirement age has also pushed well beyond 50 years old.
So how does one make sure that they can live a financially secure retirement?
- The first step to financial freedom is to decide at what age you would like to retire, and make financial plans accordingly. Most financial experts’ rule of thumb is that 15% of your monthly income should be exclusively reserved for savings towards retirement. However, it is essential to take into account your current financial situation and exactly how much you can realistically dedicate towards your retirement fund.
- One should also pay close consideration towards what savings or investment vehicles your retirement savings go towards. Aside from your existing pension or provident funds, additional investment vehicles such a simple unit trust or retirement annuity can help you to build a more diverse retirement portfolio while earning interest, and also prevent you from keeping all your eggs in one basket. There are a number of other investment products worth speaking to a financial advisor about and finding out which one works best for your financial situation.
- Regardless of your financial situation, the next step should be to examine your existing debt and erase it as quickly as possible. Any paid off debts, such as a house and a car, go a long way towards leaving you with more money in retirement.
Where possible, consider how that paid off car or house can allow you to generate a passive income. Both Airbnb and Uber are viable passive income options, and are relatively cheap and easy to set up and operate, for example.
Regardless of whatever stage you’re at, educating yourself on your options is essential to ensuring your financial sustainability at retirement. A comfortable retirement is ideal, but a sustainable one is what gives true peace of mind.