• Editor

How to plan for a longer retirement

Research has indicated that babies born in 2007 in certain parts of the world have a life expectancy of over 100. While this might not be quite your profile, there are a few simple steps we can all take right now, for the sake of our future security.

1. Review your investment strategy. Are you taking the right level of risk for your age? If you have more than 10 years from retirement, you should be taking higher risks and investing predominantly in the stock market. If retirement is only 2 years away, you should ensure that your money is protected from volatility.

2. Build a relationship with an accredited financial advisor. The importance of staying informed about your future finances cannot be stressed enough – and you may need expert assistance to establish whether you will have enough money to retire comfortably, how long this money will last you, and which annuity option will work best for you.

3. Consider retiring a few years later. You are permitted to leave your money in your retirement fund to continue growing, even if you do retire. This is known as deferring your retirement. Your employer may even be willing to let you work past your normal retirement age. Many of us are still vibrant and healthy in our 60s, so perhaps you could work for a few more years and make the most of the opportunity to save.

4. Consider an additional savings vehicle. Does your Fund allow you to make additional voluntary contributions to your retirement savings? This could be either a monthly contribution or a lump-sum contribution. Alternatively, you can save outside of your Fund in a tax-free savings account or similar product.

5. Leave your savings ALONE. No matter what, resist the temptation to take a portion of your retirement benefit in cash, should you change employers. This is the most important, and simplest, yet hardest rule of all to follow.

Have a look at the following example:

  • Jane invests R500 each month from the age of 18. At age 28, after ten years, she decides to stop. She has invested a total of R60 000. Jane leaves this amount alone for the next 47 years, until she turns 65.

  • Jenny, who is Jane’s best friend and the same age, also invests R500 a month, but she only starts at age 28. Jane carries on investing this monthly amount for 37 years, when she turns 65. In total, she invests R222 000.

Which of the two friends will have more when she retires?

Even though Jenny contributed almost four times more, she still has far less money at retirement. This is because Jenny’s money earned compound interest for ten years less than Jane’s did. Isn’t the power of time and patience incredible?

“You can’t connect the dots looking forward; you can only connect them looking backwards. So you have to trust that the dots will somehow connect in your future.” – Steve Jobs


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