Whatever your religion, April is a time for family. Some of us gather our loved ones and begin the pilgrimage to Zion City Moria in Limpopo, while others get together with their nearest and dearest over Easter Sunday lunch.
While enjoying the April holidays with our family is what life is all about, it is also a good opportunity to give some thought about what we want for ourselves as well as those we love in the future – and this includes preparing for retirement.
Alex Ollewagen, Client Solutions Actuary at Metropolitan, provides four egg-cellent reasons why you should prioritise your retirement savings this April – no matter your life stage.
Give your family the runway they need to build a legacy
Many of us do not adequately prepare for our later years so when the time comes for us to retire, we rely on our family members to support us financially, explains Ollewagen.
A significant portion of South Africa’s population is financially responsible for both their parents and their children, which has earned this group the term ‘sandwich generation’. Ollewagen explains that while supporting an extended family is a lived reality for many South Africans, this double-ended financial pressure may negatively impact their building wealth for generations to follow.
“While we may not view supporting those we love as a burden, through preparing for retirement we can support ourselves in our later years, giving our dependents the runway they need to build a legacy for their children.
“Instead of your children purchasing groceries for you when you retire, your regular retirement income will enable you to buy these essential goods for yourself, freeing up those funds for your grandchildren’s education,” he offers as an example.
A retirement annuity will save you on tax
There are several tax breaks in place to encourage saving for retirement, and you must take advantage of these, says Ollewagen.
You can contribute up to 27,5% of your yearly taxable income (with a maximum of R350,000 per year) in a tax year to a retirement annuity, completely tax-free. “Remember, says Ollewagen, that any amounts you pay to a pension or provident fund through your workplace are also taken into account when calculating these limits.”
In addition, you will find it reassuring to know that you won’t be taxed on your retirement savings growth from the day you take out the annuity up until your retirement date – so what you put away will be able to grow over time, without being taxed.
It’s never too early…
Ollewagen emphasises that it’s never too early to start saving for retirement. “The earlier you start, the more runway you give your retirement savings to grow. It is especially over the longer term when the magic of compound interest comes into effect – which is when your interest earns interest.”
Say you start working at age 25 and save R500 per month until the age of 65. At a yearly growth rate of 6%, your savings may grow to R1 000 000 or even up to R2 500 000, if you increase your savings amount by 6% every year.
“This is an example that serves to show you how a relatively small amount can add up to a sizeable pot over time. However, it is important to keep in mind that there are many economic factors that would influence and affect your retirement savings,” he adds.
But it’s also never too late…
By that same token, Ollewagen says that it is also never too late to start saving for retirement. "While saving from a younger age gives your savings more time to grow, do not despair if you are well into your working years without any savings – it is never too late to start.
Ollewagen offers the following tips for those who have yet to start saving for retirement.
“Firstly, fine-tune your budget, and calculate how much you can reasonably afford to put away. Aim for as much as possible – remember, the more you put away, the more it will grow (thanks, interest!)
“Secondly, consult a qualified and experienced professional, such as a Metropolitan financial adviser, who will be able to talk you through the various options available, and help you pick one suited to your needs.
“Finally, set up a debit order so that your retirement contribution leaves your account each month automatically, without you having to think about it,” he advises.
Ollewagen highlights that it is also very important to stay invested. “Have a ‘rainy day' fund that you can access in times of emergency, says Ollewagen, “to avoid using some of your retirement savings.
“While it is never too early or too late to start saving for retirement, you want to give your savings the time and space it needs to grow so that you can enjoy a comfortable retirement in your golden years.”
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