Don’t Get Left Behind

Don’t Get Left Behind

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We all hope to retire in comfort one day, however statistics reflect that only 4% of South Africans retire in comfort; 12% simply get by; 33% have to reduce their lifestyle dramatically; and an alarming 51% retire in circumstances that force them to supplement their income or rely on family members for financial support.

South Africa is not a welfare state and the basic pension does not provide sufficient money for retirement. The amount changes periodically and is currently R1 260 per month per person.

There is a means test to assess whether you are entitled to this, but in this year’s budget the Minister announced they would be reviewing this method as it seemed to be unfair to penalise those who have saved for retirement by excluding them from an old age pension. I’ll report more on this when we have further clarity.

Plan ahead

The few who retire at a relatively young age soon find themselves seeking other interests to occupy their minds and time. Actual retirement should be carefully planned and you need to think about it at least four years prior to retiring. What you will do with your time is more important than anything else.

Financial planning has to start 30 to 45 years before you plan to take your retirement if you want to be financially independent with options and funds to provide you with sufficient income in your retirement years.

Adjust for age

I like to divide life into four stages:

 

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  1. The first 18 years are for education.
  2. Age 18 to 36 — further education and exploring opportunities to find out what you plan to do with your life.
  3. Age 37 to 55 — concentrating on your career and making changes that improve your situation.
  4. Beyond this, you are planning for retirement. In the first three stages, you can afford to take a lot more risk and be much more growth orientated than in the last stage when you require income certainty.

Don’t risk retirement savings

All too often, business ventures can fail. The younger you are the greater the ability to start again. But by the time you reach stage four, you are not in a position to take too many chances with the capital you have built up for retirement.

Statistics show that both men and women are living quite a few years longer than in the past — men to age 82 and women to 86 — and this is due largely to advancements in medical technology.

It’s virtually impossible to explain to a 20-year-old why he or she needs to start thinking about retirement. Think back to when you were in your 20s. What was paramount in your mind — getting your salary and buying the things you needed, or saving for retirement? No prizes for guessing what the last thing was on your mind!

In for the long run

In my experience, even being forced to join a retirement fund at your place of work seemed a waste of money. Why on earth would anyone want to be a member of a company’s fund, especially if you believed that there was no chance you would stay with the company until retirement?

Unfortunately, in most instances, staying on at a single job for a lifetime is very rare today. This, however, should not detract from the importance of retirement and other long-term savings options.

After a few years in the industry, my more successful clients started to look at this type of saving and to debate whether they could create any real wealth. But retirement planning and wealth creation are two very different strategies.

While it is true that creating wealth and amassing funds will provide many generations with their financial requirement — and it is very sad that this is done by so few of us — it’s important to remember that most of us have to try to save enough funds just to allow us to live from day to day in retirement.

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Bryan Hirsch
BRYAN HIRSCH has been in the financial services industry for 47 years and is a director of Bryan Hirsch Colley & Associates. He has written two books, the first Bryan Hirsch’s Guide to Personal Finance and more recently, Steps to Financial Freedom. Bryan has written for many of South Africa’s top financial and business publications, has been a weekly guest on Radio SAFM for 18 years, and has his own weekly TV show You & Your Money on Summit TV.