Saving up to support yourself after you leave the workforce is more important than ever.
Generations who are currently employed can expect to live longer than previous generations: thanks to advancing technology and improving healthcare standards, celebrating your 95th birthday is increasingly commonplace. At the same time, automatically accumulating wealth to support you later is tougher now than it was for previous generations. And if you have an employer-generated pension, it may no longer be enough to provide for your needs post-retirement.
It’s crucial to have a nest egg which slowly grows as the years pass and becomes your income once you’re no longer employed.
Many South Africans are happy-go-lucky. We tend to take each day as it comes and enjoys our finances at the moment. Shockingly, most South Africans are quicker to take out a loan than they are to put a little cash towards their future.
In our current economic situation, it’s not easy to spare those extra rands. However, with the right financial advice, you can continue to save for your retirement, and even increase the amount that you expect to have save up by the time you reach your fifties or sixties.
In this post, we’re going to guide you through our nine best tips to boost your retirement savings. From tax-free savings methods and ways to grow wealth, to budgeting know-how and practical advice, these pointers will get that nest egg growing and ready to make your golden years your best years yet.
1. Don’t take out high-interest loans.
According to financial experts, South Africa has a debt culture rather than a savings culture. Break the negative cycle for yourself and your children by making a pact with yourself to never take out a loan that doesn’t come with a highly affordable interest rate. Loans and the accompanying interest rates have a horribly consistent way of eating into people’s financial futures, so doing this holds a significant amount of weight when it comes to just how much income you’ll end up with when you retire.
. Here’s how to avoid taking out that expensive loan.
- Don’t make significant financial decisions in a hurry. Wait at least twenty-four hours.
- Lower your expectations for your living standards. Anyone who thinks less of you isn’t worth worrying over anyway.
- If you’d still like to take out a loan, work towards achieving lower interest rates. This post contains some punchy tips on how to do that.
2. Take advantage of tax-free retirement options.
South Africans can enjoy tax-free investments when they’re saving for retirement. Skipping the tax on your monthly retirement payments bumps up the amount you can afford to save. Here’s how it works.
- Retirement annuity (RA): if you open an RA, you can invest up to 27,5% of your annual taxable income, or up to R350 000 per year, without having to pay a rand of that towards tax. Any excess counts towards next year’s savings. On the flip side, you can withdraw only one third of the accumulated sum once you reach retirement, and will have to pay tax on any withdrawal larger than R500 000.
- Tax-free savings account (TSFA): if you have a TSFA, you can contribute R33 000 per year and pay no tax. Anything above that is taxed at 40%. You can withdraw whenever you like, and no tax applies to withdrawals.
3. Start an investment portfolio.
This may not be a tax-free option, but with a little extra work, an investment portfolio can really pay off. Here’s what you need to know.
- You’ll need to educate yourself on types of investments and investment opportunities.
- A reputable investment broker is essential. A good investment broker will guide your investment journey and help you make the best possible decisions.
- You’ll need some cash to start off with, for paying the broker and funding initial investments.
- This is the best way to ensure that your investments pay off and any losses are absorbed by your gains.
4. Become financially savvy.
Many people spend their lives swimming through a confusing, often overwhelming sea of financial options, decisions and requirements. Become proactive and control your financial situation by educating yourself financially. Read articles and blog posts (like the ones you find here on moneytoday), attend online courses (there are tons of free options) and even go back to school for courses on sound financial practices and savvy decision making. Ultimately, this will generate extra cash for putting into your retirement fund, and other things as well.
5. Learn how to budget.
This ties in with the last point, but it’s so crucial that it deserves some extra attention.
The key to being able to cover all your financial bases is knowing where your money is headed before you spend it. Learn how to write up an in-depth personal budget, all expenses included, and make a habit of doing this before you start each month. There are loads of free budgeting courses, tutorials and materials online.
Stick to the budget. It’s a method that every successful person swears is essential: it helps you to take control of your finances, consider expenses carefully and not spend above your means. Once you’ve budgeted for your retirement, you’ll find it easier to not spend that money elsewhere.
6. Work a few extra years.
Working a few years longer than the current standard has a double benefit: your retirement fund will need to support you for a few years less, and you’ll have some extra years to add cash to your fund. To make it easier, consider working from home or taking up a less taxing position. Provided you have good health insurance, you may find that the last years of your employment come with fewer expenses, so you can plump up that nest egg in unexpected ways.
7. Downgrade your house or car.
Saving requires sacrifice… and the more significant the sacrifice, the less likely you are to keep saving long-term.
However, if you’re not managing to save for your retirement, some expenses really are worth cutting. It’s better to live a long life in comfort than being forced to drop from luxury to poverty when you leave employment with no funds to support you. If you have an expensive house or car and live in a classy neighborhood, consider downgrading. The extra cash earned or spared can go into your retirement fund.
8. Automate retirement fund contributions.
If you’re budgeting, you already know how much you need to put into your retirement savings every month. Make the process even easier by automating it. Set your payments to a debit order that happens directly after you receive your paycheck. This will help to ensure that your retirement payments don’t end up going towards other expenses.
9. Hire a financial advisor to help you make sound decisions.
The occasional visit to an excellent financial advisor is well worth the investment. While increasing your own financial knowledge is vastly beneficial, a financial advisor offers deep-seated advice, solutions for complex situations, exclusive information and long-term strategies for improving your financial situation and supporting yourself in your golden years.
The economic situation in our country may be challenging at present. However, with some wisdom, planning and the occasional well-placed sacrifice, there’s still no reason that you shouldn’t enjoy financial security when you retire.