Nicolette Dirk, finance writer, Justmoney.co.za
According to South African National Treasury, only 6% of the population will have enough money to comfortably retire, without having to comprise their standard of living. In addition to this, the World Health Organisation’s (WHO) statistics reveal that people around the world are living longer, which adds to the challenges of providing enough for retirement.
According to Steven Nathan, chief executive officer of 10X Investments, the start of a new year presents an opportune time to implement proper planning and preparation to better ensure a financially secure retirement.
Here are his five tips to ensure a comfortable retirement:
Set a retirement goal
“You need to calculate how big of a pot of money is needed to be set aside in order to ensure a comfortable retirement. A good place to start is to work towards a minimum replacement of 60% of your final salary, or around 10 times your current annual salary,” said Nathan.
The lower the fees, the greater the retirement pot
You should always ensure that you are paying low fees. Nathan said fees should be no more than 1.5% and preferably below 1%. “If you can save 1% in fees, your final pension amount would increase by about 30%. A recent National Treasury study found that if consumers could reduce their fees from 2.5% to 0.5% then they would be able to double their final pension,” said Nathan.
You should have an age appropriate investments strategy. Nathan advised having 75% invested in growth assets, such as listed shares and property, to reach your goal and generate a return of between 5% and 6% a year above inflation. “You can then switch to a more conservative portfolio five years before retirement,” he added.
Implement a strict savings regime
You should be saving at least 15% of your monthly salary for 40 years to build a sufficient retirement pot. Nathan said it is vital to avoid the temptation to defer savings or cash in when changing jobs. You should save as much as you can for as long as you can.
Compound interest is your best friend
Nathan believes you should ignore short-term stock market volatility and the distraction of market commentators that often encourage investors to switch funds or change a savings strategy based upon recent events.
“Your goal is to maximise the size of your investment at retirement and not to worry about short-term stock market volatility, which is unpredictable and unavoidable. The earlier a person starts planning for retirement the better. With the priority on retirement reform in 2014, hopefully more people will be encouraged to focus on this critical issue,” he said.