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Retiring with Grace

Life companies have a vested interest in encouraging us to save more, but is this one of those cases where more may be less?

Eamonn Ryan

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Listening to life companies, you’d think most pensioners are destined to frugal retirements and better get used to the idea now. They berate South Africans for not saving enough money towards retirement, and whenever they get the opportunity, cashing in what little they have saved instead of preserving it. Of course, they have a point. But go onto any social discussion forum and you will see endless complaints from individuals who have done exactly what life companies say they must, yet are disappointed when they see their actual savings after their life company deducted its costs.

What do they offer you in return for the approximately 2% of your capital they siphon off? It is not the capital – you earned that. It is not the return – the JSE or money market delivered that. In fact, these are not the right questions to be asking, says financial adviser Bryan Hirsch. It is all about savings. A country such as Australia has a national savings scheme, and South Africa has been pondering a similar solution, which removes ‘financial products’ from the equation and emphasises compulsory savings.

Sanlam does an annual survey which invariably reveals the need for more saving. Danie van Zyl, head of guaranteed investments at Sanlam Employee Benefits, says that 60% of pensioners say they do not have enough money, and Sanlam’s advice (echoed by the life industry) is that people should start saving earlier. Other revealing statistics are that on leaving a job, two-thirds of people opt to cash in their retirement savings, and worst of all 47% of members say they have “no idea” of what their retirement savings are invested in.

Disconnect between people and retirement

This reveals a disconnect between members (never mind the broader public who are not on a retirement scheme at all) and retirement, says Van Zyl. He says most people only wake up to the issue of retirement when they are about five years from it. The disconnect began 20 years ago when companies shifted from defined benefit to defined contribution. It is therefore not so much that people have lost interest, but when they needed to take an interest they failed to do so, and that is at the heart of the problem, says Hirsch.

Have a plan – and a budget

South Africans rank poorly in financial planning, but Hirsch claims their debt ratio is not as bad as many think – they have disposable income to save, they just don’t know it. “If you do not operate according to a budget, how can you identify costs that could be trimmed to make space for saving? A budget is critically important to calculating how much you can save – and often without even limiting your lifestyle,” he explains. Hirsch also says that retirement is something that has to be confronted: people need to work out exactly what they will need in retirement to live (taking into calculation savings they might have outside the retirement net) and work backwards to what they need to save now. “In particular, you have to pay off all debt including your bond, and make provision for future medical costs.”

The fundamental problem in South Africa is that retirement saving is not compulsory and its preservation not enforced. Current regulations almost encourage people to cash in, as the tax rate charged for it is a low 18%. “I believe even fewer people will consider preserving in the future,” says Hirsch.Van Zyl says there is another area that may soon worsen the savings rate. With the increase in compliance around pension schemes, many smaller funds are opting to join umbrella funds to minimise costs. That’s a good move, he says, but inexplicably Sanlam’s survey also demonstrates that many companies are using the excuse of the shift to reduce their employer contribution. So employees are now saving even less than before. He expects the shift to umbrella schemes to gain momentum.

Save 15% over 35 years

Sanlam claims that each individual needs to save a total of 15% of his income over a period of 35 years, whereas the average among members at the moment is 11,7%. With longer lifespans, even this may not be enough. European governments are currently looking at extending the retirement age to 68 or 70. In South Africa, with our youthful – and unemployed – population the trend is to lower it to 55.

Retirement planning is all about compounding – every month lost becomes harder and harder to make up. Another frightening statistic, says Van Zyl, is that pensioners can no longer bank on living off their own children. Not only are those children struggling to make ends meet, but half of grandparents today have dependents still living with them due to the impact of HIV/Aids. Members may cash in one-third of their benefit on retirement, which is supposed to be a ‘rainy-day reserve’ but a quarter of pensioners spend it intwo years.
Hirsch’s solution is for people to take control of their own finances – budget, quiz your financial adviser on every investment, especially the costs,  and minutely inspect every household bill for potential savings.

Investment opportunities

Supplement with an RA

For the individual in formal employment it is customary for membership of the pension scheme to be compulsory. Danie van Zyl, head of guaranteed investments at Sanlam Employee Benefits, says that if the combination of your employer’s and own contributions is not 15%, then supplement it with a retirement annuity (RA). If you are self-employed, then buy an RA up to 15% of your income. To the cynics who say life companies are making money out of them, and they could do a better job themselves, the life industry argues that people clearly aren’t, because whenever they can, two-thirds cash in their benefit. The benefit of contractual savings over unit trusts or property is that it forces people to save.

Before becoming a financial writer and freelance journalist in 1997, Eamonn Ryan was a legal adviser, company secretary and alternate director at listed company Cashbuild Limited from 1988 to 1997. Since becoming a financial writer, he has focused on the business and financial sectors, as well as personal finance, writing for Finweek, The Star Business Report, Sunday Times Business Times, Business Day, Mail & Guardian, Entrepreneur, Corporate Research Foundation (which brings out a series of books each year ranking SA’s best employers and best managers), as well as a host of once-off and annual publications such as ‘Enterprising Women’ and ‘Portfolio of Black Business’. He also writes media releases, inhouse magazines and sustainability or annual financial reports for various South African corporates and financial services groups, including the Ernst & Young annual M&A book.

Personal Finance

6 Ways To Develop A Millionaire Mindset

Chasing money has remarkably little to do with getting rich.

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If you truly want to have a million dollars, you must first be and think like a millionaire. By doing so, you will attract the necessary resources to you.

So, you want to become a millionaire entrepreneur? You’re not alone. Many dream of leaving their job and becoming their own boss, enjoying the various millionaire lifestyles we watch on TV. But there’s a difference between those who dream of becoming millionaires and those who do. And it begins and ends with mindset. If you don’t develop that mindset, you will continue to spin your wheels, working just as hard, but never going anywhere.

Developing a millionaire mindset requires you to stretch your thinking. Start by developing the following six attributes.

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Personal Finance

4 Ways To Become A Millionaire Even When You Start With Little

It costs nothing to take advantage of the limitless opportunities online.

Timothy Sykes

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The hardest part of becoming successful is getting started to begin with. But despite the challenges ahead of you, there’s a way to become a millionaire when starting with little. I’m going to show you four reasons why you can become a millionaire with just a small investment.

1. First focus on learning, not big gain

Education is your greatest weapon. Focus on learning in the beginning. Don’t make the mistake of focusing on making huge gains in the beginning. Learn everything you can because this is how you build the foundations for long-term gains.

Related: 21 Choices Millionaires Make That You Aren’t Making But Should Be

They say that if a millionaire goes bankrupt they’ll nearly always be able to get it back. And that’s because they might have lost their money, but they have the knowledge of how to get back to where they need to be.

2. You can learn loads about any topic online

online-learning

I’m grateful for the internet. It’s the single biggest library in the world. You’re reading this article right now and you’re acquiring knowledge you wouldn’t have been able to acquire 40 years ago.

Use the internet to its fullest extent, whether that’s through reading books, browsing articles or watching video tutorials. Set some time aside every day to learn something online. It could be a video series or a favorite blog.

When you get into the habit of learning regularly you’ll find that you advance much faster.

3. Focus on the niche you love

These days you can learn about anything and target the niche you’re passionate about.

This is what I was able to do with penny stocks. I found a gap in the market and provided knowledge to people who wouldn’t have otherwise being able to access this sort of information.

You can do that with absolutely any niche. When you find a niche you’re passionate about and you use the reach of the Internet you start to make huge gains.

4. Prove your expertise by creating free content

Your reputation as an authority is the new business card. There’s a reason I created a penny stock guide and made it free for all. You may have already seen ads for it on social media. The way to succeed with little is to create a reputation through your content.

Related: How To Become A Millionaire, Explained In 1 Minute

It’s the gateway to success because through free content you start to build relationships with others who value your work. And from there everyone gets richer.

You can do lots with a little

The days when you needed a huge investment to become successful are long gone. These days you can do so much with just a little. Find what you love, advance your knowledge in that area, and create a product that fulfills a need. Finally, work on building up relationships through portraying yourself as an authority on your subject.

Combine everything together and you can accomplish anything.

This article was originally posted here on Entrepreneur.com.


Related: 13 Habits Of Self-Made Millionaires You Could Adopt Today

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Personal Finance

10 Tips To Become A Millionaire This Year

Becoming a millionaire requires changing your mindset and implementing some changes.

Murray Newlands

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Becoming a millionaire may seem out of your reach, but it’s possible with the right attitude and guidance. The fact of the matter is your income can only grow as quickly as you do, so you need to change your mindset to achieve your goal of becoming a millionaire.

Once you have a millionaire mind, you can’t lose it, no matter what financial or business mistakes you make along the way. To get yourself there, you’re going to need some structure. To help you, I’ve outlined the top ten tips you should follow to become a millionaire this year.

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