Thanks to the advances in health care and nutrition, the life span of the average South Africa has increased dramatically. A longer life expectancy increases the likelihood that you will be able to work longer but you will also need to save more for your retirement. Putting money away for retirement is a postponement of gratification.
Your retirement plan will most probably be the largest investment you will ever make.
The big question is how much money does a person have to amass for a comfortable retirement? This is difficult to answer as it depends on individual expectations on retirement, e.g. different lifestyles, age at retirement and life expectancy. In addition, there are unpredictable factors such as inflation and investment performance to consider. A possible indication of one's needs can be predicted in relation to an individual's final salary.
Should an individual wish to retire at age 65 on R240 000 per annum, and still be healthy at age 85, without drastically altering his/her lifestyle, an amount of R4 800 000 would be required to get through what is effectively a twenty year holiday, without taking into account the ravages of inflation.
How long would one have to contribute to a retirement plan to amass this substantial sum? Again this varies, depending on whether monthly or annual payments were made; whether the payments ceased at any time; the performance of the investments in which the money was invested, and whether low or high-risk funds were chosen. All these factors should be weighed up together in order to reach a decision but remember, it is never too early to begin saving.
No matter what your financial circumstances or goals are, you can't plan for tomorrow until you know where you stand today. Your first step should be to create your own balance sheet. By doing this you will calculate your net worth. The balance sheet will highlight the value of your assets and any liabilities. You will be able to determine which assets have appreciated and those that have depreciated. Your assets should include:
• Investments - shares, unit trusts, policies, pension and provident funds and RA's.
• Property - your home, farms and holiday home.
• Personal items - stamps, coins, art and antiques.
• Cash - money in call and savings accounts.
Your liabilities should include:
• Bonds - private homes and holiday homes.
• Education - for your children.
• Credit cards.
• Overdrafts.
• Secured debt - cars and business.
Subtract the assets from your liabilities it will give you a clear indication how you stand.
Set achievable goals
Decide what your objectives are and how you will achieve them. Then decide on the time frame that it will take to achieve these goals.
Your own plan
You now know your net worth and your goals! These must now be put into a formal plan and we strongly advise you to write out a financial plan. The plan should have the following:
• Am I saving enough for my retirement? Work on 85% of your final salary.
• How fast can I reduce my liabilities?
• What will I save in interest by advancing payment on my bond and car?
• Are my present investments correctly structured? (See investments)
• Do I have enough life and disability cover?
• Have we saved enough for our children's education?
• Will my wife and children be taken care of when I die?
• Have I got comprehensive medical aid cover?
• Should I do further studies to keep up to date?
Implementation
Once you have your own plan you must implement it immediately and it should be maintained on a regular basis.
If you don't want to put your own plan together, implement and monitor it, you should consult a financial planner who is trained and will monitor your progress.
Your expenses at retirement
• When planning you should also consider your expenses during retirement. Let’s take a careful look at these.
• Medical costs - these costs will escalate as you get older. It is estimated that eighty percent of your medical costs will be paid in the last eighteen months of your life.
• Travel - you now have the time to travel.
• Grandparent - you could end up helping your parents with medical bills and living expenses.
• Children - your children may need assistance.
• Utilities - as you will spend more time at home these costs could increase.
• Security - you would most probably need to spend more as you get older. It may force you to buy a townhouse that is far more secure.
• Sport and social clubs - membership to golf and bowling clubs.
On the positive side the following costs should decrease:
• Insurance - car insurance and public transport costs.
• Pensioners will pay lower transport costs and entrance fees into certain places, e.g. Botanical gardens and movies.
• Retirement investments - you will now no longer be saving for retirement.
• Bond - your bond should be paid up.
• Car - your car should be paid for.
• Daily expenses - you will tend to stay at home and not spend as much time travelling to and from work. Your need for suits, work clothes, lunches and other work-related expenses will come to an end.
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