retirement planning (2)

RETIREMENT pLANNING

If you look at the statistics then only a handful of people will be able to retire one day. Most of all people out there that are employed and contribute towards a pension fund will not be financially self sufficient at retirement. It is shocking that only about 4% of all retirees will have enough for the retirement years. About 6 out of 100 people that belongs to a pension fund will be able to retire but will run out of money later in their lives. The rest will be dependent on families or the government.

There are a few reasons why people do not have enough retirement savings:

People start too late in their lives to save for retirement.

People do not work for the same company anymore and do not contribute more than 40 years towards the same retirement fund.

Every time you change employment and do not transfer your retirement money to the new retirement fund, you lose retirement years. In most cases the money is paid out to the client and not transferred to the new retirement fund.

Another reason why retirement money does not last is because of life expectancy. People live longer than years ago, because of better healthcare and technology. This means that you need a much bigger amount to invest at retirement.

Investment returns are also a huge problem and needs to be monitored regularly because it is better to change your investment view as soon as possible so that the money in your investment fund can grow constantly. People do not plan for retirement. Your retirement money is not there to buy your dream car. People spend more time to plan their holidays than their retirement.

There are excellent products today that a client can use to save towards retirement. Even if you already contribute towards a pension fund, I will strongly advise you to contribute towards your own pension product, like a Retirement Annuity Fund.

The benefit of a Retirement Annuity is as follows:

You determine the investment portfolio that you invest in
Money paid into this product does not form part of your estate and therefore it will be protected by the pension fund act. You cannot make any loans to this and it cannot be surrendered. A debtor also cannot claim against this fund.
The premiums paid to this product are deductable from your income tax according to certain tax rules. This means that it will lower your taxable income and therefore pay less tax. In other words if you save on tax while contributing towards this, then SARS actually helps you to save for retirement and technically subsidizes your contribution.
You choose the retirement age date, from 55 to age 70.
This product is not linked to a specific employer and you have flexibility in premiums. This means that you will be allowed to change your premiums. Increase or decrease your contributions.
At retirement you have the option to take 1/3 of your fund and receive a pension per month or take no lump sum and receive a bigger monthly pension.
There are fewer costs of Retirement Annuity Funds. Pension funds can be a very expensive product in some cases and you do not have the flexibility like with a retirement annuity.
Remember it is better to start saving a small amount per month, rather to wait for a time you can afford more. “Compound Interest” is one of the fascinating factors that even scientists marvel at.