Thought Leadership

Money matters - saving for your future post retiring

June 2022
EDITION #5

Most people are known for their extravagant spending, which sees them living pay check to pay check, yet behind the smoke screen of living the “high life”, many are drowning in debt. As South Africans, our experience with money is probably just as diverse as our population. Significant gaps have been identified throughout the different age groups regarding understanding basic financial concepts.

Therefore, using a one-size-fits-all approach to financial education will not impact or produce the right results. South Africa faces a severe issue with the low financial literacy rate negatively impacting people’s mental well-being and their ability to save. Marius Pretorius, Head of Marketing Retail Savings and Income at Old Mutual, identifies some of these issues and provides guidance in adopting a savings culture and retirement planning.

There is a considerable gap in the education of today’s youth on how to save money and the importance of saving early.

Marius says, “Generally, young people don’t plan for their financial future. They don’t realise how hard it is to make money or how unpredictable life can be. They have little knowledge of how difficult it can be to live a comfortable life when you are older and no longer receive an income.

Saving doesn’t come naturally to anyone, young or old. You may feel that if all your basic needs are met, why not spend the rest on new clothes, a fancy phone, or even living beyond your means with credit. It is, therefore, crucial to get into the habit of saving. A little goes a long way to secure your financial future.”

Marius offers a few guidelines to save:

Time Is On Your Side

Time is one of the most potent ingredients in building wealth. The time you invest for your money is more important than the amount of money you invest. Compound growth is the main reason for starting to save when you’re young because the longer you allow your money to benefit from the power of compound growth, the more it grows. So, by simply starting early, you can get a big step ahead in life.

EXAMPLE:
Two friends save R1 000 every month at a growth of 10% every year.
Thandi saves from age 25 to 35 (10 years) and stops. Her total contributions were just R120 000, but when she is 70, her investment value will be R3 961 860.
Sylvia saves from age 35 to 70 (35 years). Her total contribution will be R420 000. And her total investment value at 70 will be R3 763 191.

The earlier you start saving, the more your money grows!

Save Before You Spend

After basic needs, savings should be seen as the next priority.

When you start working, you have only so many paydays, and you will not be able to add more of them. If you start working at 25 and retire at age 60, you shall receive 480 pay days. The earlier your start saving or investing, the more you can maximise those 480 pay cheques. Every month you don’t save is lost in terms of the potential purchasing power of that lost savings.

Avoid getting caught in the “must-have” mentality. Be disciplined and think of needs versus wants.

EXAMPLE:
Instead of three cups of take-away coffee daily have two.
@R30 per cup; after seven days, you save R210. After a month, you save R900.
Imagine the savings if you cut down on other spending that is more a want than a need!

The urge to spend is high with mobile money and other more manageable electronic payments. Delay costly purchasing for a few days; you may find that you did not need that item.

Don’t buy what you don’t need!

Start Saving For Your Retirement (you will thank yourself later)
You may not earn a big salary when you start your career, but you now know about the power of having time on your side. Start saving towards your retirement with your first pay cheque. If you take out a retirement annuity at an early age, you get both the benefits of time and tax savings in one investment!

Tax saving? Yes, because essentially, the government helps contribute to your savings. That’s because your contributions, within certain limits, are tax-deductible. Speak to a financial adviser who can demonstrate the potential tax savings that you may benefit from.

There are different types of retirement plans:

  • Most companies will offer employees a Pension or Provident Fund. This is also a great way to save and build wealth as it comes off your salary before tax. Don’t be tempted to cash out your Pension or Provident Fund savings and spend them when you move on to employment in another company. Transferring them to the new employer’s fund is a wiser move. Remember the benefits of compounding returns over time.
  • Retirement annuities provide further retirement savings options for those with pension funds or self-employed persons with no employer pension fund. It’s a disciplined way to save for retirement because you can’t access your money before retiring at age 55. Financial service providers offer retirement annuities.

Invest For Your Future
Saving is about setting money aside while investing is about growing your savings.

You can start investing with a small amount. Once again, compound growth is your friend. And again, the sooner you start, the better off you’ll be. There are various investment products on the market, so best talk to a financial adviser to help you find the best solution for your needs and budget.

Never forget that a small start can lead to significant returns over time! Patience is the name of the game.

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