You know your number and how much you need to retire comfortably with an income replacement ratio of around 75%.
The only problem is, the future state of your current savings is nowhere close to that number because you either started too late or haven’t started yet.
According to 10x Investments’ 2018 Retirement Reality Report, this is an unfortunate reality. 74% of the survey respondents said they started saving too late for retirement, and only 7% have a well-considered retirement plan which they’re actively executing.
If you’re still young, you have time on your side. Take it and make the best of it. Consider small sacrifices – increasing your monthly contribution with an extra 3% of your gross salary can result in 15% more income during retirement. Saving an extra R100 every month will make a big difference in 30 years’ time.
If you’re close to retirement, you need to put your future interests first. To make a better retirement a possibility will take serious intervention and lifestyle changes. But, as with everything in life, nothing is impossible.
The following hacks will help when playing retirement savings catch-up:
- Don’t wait for the day when you can invest more or when your house is paid off. And don’t get spooked by the percentages you need to save – especially when you need to catch up in your 40s and 50s. Just start – even if it’s with a couple of hundred rand every month. It will get easier to save more once you get the hang of it.
- Keep fees at a minimum. The less you spend on fees, the more money gets invested to bolster compound growth.
- Make tax exemptions work for you. Lessen your tax liability by maximising your retirement contributions.
- Tax refund? Invest it in your RA. The same goes for any bonuses.
- Increase your contribution every time you get a salary increase.
- In terms of your asset allocation, focus on growth and maximise your exposure to equities. Listen to this podcast for ways to think about allocation as you approach retirement.
- Consult a professional for advice. When you have to play catch-up, the last thing you can afford is a mistake or a bad investment. If you’re close to retirement, get a professional to review your portfolio.
- Delaying your retirement and retiring at 65 and not 55 can just about double your retirement ratio.
Saving for retirement is the biggest investment most of us will ever make. Sadly, it can also be very complicated. In this monthly blog, we try to answer some of the retirement questions we hear most often, ranging from which products are best suited to different circumstances to efficient tax treatments. Words by Carina Jooste.