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The number of self-employed individuals in South Africa is just shy of 30% (2022 World Bank data). Whether you’re an entrepreneur, contract freelancer or have your own small business, you’ll know all too well that self-employed individuals’ remuneration can fluctuate from month to month due to seasonal variations, economic downturns or fluctuations in project-based work.

This highlights the absolute importance of having a consistent approach to retirement planning – even though it’s a tricky balancing act.

When, where and how to start?

Being proactive is key – don’t wait until you earn enough to save for retirement. A small contribution every month over the long term adds up – and time in the market can make up for those small contributions. Investment vehicles like retirement annuities and TFSAs are great places to kick-start your retirement journey as a self-employed individual.

Retirement annuities

There are many benefits to a retirement annuity – investment growth within RAs is tax-free, contributions are tax-deductible, the money invested is protected from creditors, and most importantly – contributions to the fund can only be accessed at the age of 55.

However, seasonal variations, economic downturns or pipeline projects that aren’t coming to fruition can hamper the best of our intentions to save for retirement. When income fluctuates – for the worse – there is nothing as daunting as looming debit orders as the penalties banks charge for insufficient funds are eye-watering.

But this uncertainty shouldn’t deter a self-employed individual from investing in an RA. Many retirement annuity providers offer more flexible solutions that allow investors to pause or alter their contributions without penalty.

If you’re pausing your annuity due to fluctuating income, invest what you can in a tax-free account as it’s critical to maintain consistency and retain good financial behaviour. Every R10 saved today has the potential to compound into something much bigger in the future.

This segues nicely into a thought a Just One Lap reader recently shared with us. Ronel, a self-employed designer from Cape Town, has noticed that many people consider the act of saving for retirement while paying off a pile of debt as counterintuitive. “But if you regularly put away small chunks of money while paying off small chunks of debt, you’ll see how the one shrinks and the other grows. True story. And this gives one a massive amount of hope to keep on saving.”

Tax-free savings account (TFSA)

Easy to open, and even easier to invest in – TFSAs hold multiple benefits for investors. The biggest benefit is, of course, highlighted in its name: It’s completely tax-free. This means no tax on capital gains, dividends or when you cash out.

However, as the capital in a TFSA is easily accessible, self-employed individuals might be tempted to dip in their savings now and again. This not only erodes their retirement savings but also weakens the long-term game-changing nature of compound interest.

Have a strategy – but be realistic

Unfortunately, retirement planning does not follow a one-size-fits-all approach. One can learn from others, but developing your own retirement savings strategy needs to reflect your individual narrative and goals. For example: Do you have several income streams that provide different levels of income stability? Do you own your property? Are you part of a dual-income household? Do you have dependents, and when will they become independent? Would you be able (and willing) to work well into your golden years?

Here, Ronel shared another gem that, on the surface, sounds rather obvious: “Prioritise your future.” As a self-employed single mother, she’s been investing what she can to give her child a leg up, but she’s now channelling those funds into her own TFSA as she wants to gift her child the freedom of not having to support her financially during her old age.

So start your retirement strategy by thinking about the life and lifestyle your future self would (realistically) like to live, understand your unique expenses and how they might change, and consult a financial advisor to guide you on the appropriate contribution amounts, investment vehicles and risk you’d need to consider.

Have scaffolding in place

• Safeguarding one’s ability to continue to make money is critical. Disability insurance can be a lifesaver if the completely unexpected happens.
• Build an emergency fund. This will prevent you from dipping into your TFSA or annual access pot under the two-pot system.
• Take care of yourself. We’ve shared this golden nugget of wisdom from one of our retired readers on multiple occasions, but it remains an important insight. Healthcare costs increase as we get older. What can you do differently today to mitigate what’s preventable?

Saving for retirement is the biggest investment most of us will ever make. Sadly, it can also be very complicated. In this monthly blog, Carina Jooste responds to common retirement questions, ranging from which products are best suited to different circumstances to efficient tax treatments.