There was a time when retirement was the logical endpoint of even the most middling career. One day, you would be set free with a cake, a handshake and ambitious plans of mastering woodworking in your golden years. (Or copious day drinking and playing bridge.)
But stagnant salaries and hyperinflation have quickly gutted this (once forgone) conclusion, leading to new generations joking bitterly about the concept of retirement rather than planning for it. One-third of millennials believe they’ll never “fully” retire and that sentiment is being shared in greater numbers by newer generations. Factor in the findings of a recent Sanlam report, where it was revealed that the average retirement age in SA is no longer 60 or 65, but 80, and the whole thing starts to feel like an ironically “retired” concept.
Why the Bleak Outlook…
“It’s not surprising that people feel this way,” says Ruvan Grobler, the Head Risk/Wealth manager at Bovest Wealth Management, citing the rapidly rising cost of living and the country’s always-in-vogue economic uncertainty. However, he says there’s more at play than just the alarming stats wheeling by on 24-hour news chirons. We’ve started living longer—much longer.
In the 1950s, if you made it to 46 before keeling over, you were right on the median for life expectancy. Now, globally, people are living to an average of 73.2 years. And while living longer doesn’t exactly balance out skyrocketing property costs or the damage the avo-on-toast you bought last year has done to your financial future, the new age has heralded in near-infinite opportunities to grow wealth.
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“We live in a time where passive income and part-time work are as easy as ever and done from anywhere,” says Grobler. So, don’t toss out the concept of retirement. Every finance expert I spoke to has crunched the numbers and reached the same conclusion: it’s still possible and very much in your grasp. You just have to get the ball rolling right now. “Starting your retirement plan early in life and maintaining a proactive and flexible approach to your financial plan should mean that retirement is a viable option,” adds Simone Sharman, the Head of Distribution at Truffle Asset Management.
How Can I Start Saving for Retirement?
“You can only build wealth if you have a deficit in your budget,” says wealth advisor Francois le Clus. “It’s income minus ego. Nobody wants to live with constraints, but unfortunately, you need to make some short-term decisions to reap the long-term rewards.”
In other words, one of the biggest obstacles standing between you and your ability to bow out of the rat race is your spending. Needlessly accumulating debt, spending every spare Randela on unnecessary luxuries and generally being careless with your dosh will turn a comfortable retirement at 65 into the absence of any respite well into your eighties.
The 3 Difficult Truths About Retirement
That’s the first hard truth about retirement; the second is that you need to start investing in your golden years right now. (Yes, as early as damn possible.) Le Clus says the biggest mistakes guys make are (a) not starting soon enough, (b) not contributing enough and (c) drawing money from their pension or provident funds before retirement. The latter will result in steep taxes, effectively burning money that could’ve otherwise been left to grow.
Now, when it comes to which fund is your best bet to bankroll your retirement, “it’s very important to understand these retirement vehicles are basically the same,” says Le Clus. The key difference lies in how contributions are taxed: all contributions to retirement funds—whether to a Pension Fund, Provident Fund, or RA—are tax-deductible up to 27.5% of your taxable income or R350,000 per year, whichever is lower. However, with an RA, you may claim your deduction when you file your tax return, while contributions to employer funds usually reflect as a deduction on your monthly payslip.
If you’re young, Grobler says that going more aggressive with these investments is the optimal long-term strategy as long as you can “stomach short-term volatility in assets like shares”. In SA, pre-retirement structures must adhere to strict regulations that do, ultimately, limit the amount of risk you can take on with your retirement funds. But if you’ve got an appetite for more risk, you can always dabble with your own portfolios beyond your designated retirement savings.
How to Calculate Your Savings Goal
There’s no magic formula for calculating exactly how much money you’ll need to retire comfortably. “But a simple calculation is to multiply what you think you’ll need per month, let’s say R30 000, by 360 months—that’s 30 years in retirement—to determine the lump sum you’ll need to save in today’s money,” says Sharman.
Grobler adds that you should aim to invest at least 20% of your monthly income. In this economy, stocks will soar and sink constantly, so it’s important to keep a level head because “time in the market is always better than trying to time the market,” says Grobler.
Your Retirement Fund is Locked In. Now What?
Your retirement funds are just one tool in your armoury when it comes to laying the foundation for your sabbatical. A Tax-Free Savings Account should be one of the first additions to your portfolio. Unlike a retirement fund, it’s a flexible fund that you can withdraw from at any point and you won’t be taxed on the profits you make on your investments. There are, however, a few limitations. You cannot invest more than R36 000 into this account within a financial year, and there’s R500 000 lifetime cap when it comes to your contributions. Platforms such as Easy Equities have systems in place to make sure you’re not over-contributing to such funds (sweet relief).
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“Another tip, that I don’t think many people in SA know about, is that you can choose to invest directly into funds of your choice by reaching out to the respective fund management company,” says Sharman. “While the growth on your investment would be subject to capital gains tax when you withdraw it, you have the flexibility to add or withdraw from this kind of investment at any time.”
For Keith McLachlan, the CEO of Element Investment Managers, “investment income is the ultimate side hustle”. “If invested correctly, you’re not just earning one revenue stream but countless others from the individual investments in your portfolio,” he says. His advice is simple: maximise savings and invest aggressively; cut expenses and budget meticulously; and eliminate debt. “If I can summarise, live below your means, save like a pessimist and invest like an optimist,” adds McLachlan.
Think Outside Your Savings
Some would argue that your RA is antiquated. That’s what Ashley Laatz, director of Tigris Wealth, thinks about traditional retirement savings vehicles. They’re restrictive, give you minimal returns and, yes, there are far better options. You just have to think outside the box.
“There are plenty of ways to retire early,” he says. “You just have to be smart about it.” His business, which counts athletes like rugby star Jesse Kriel amongst their clients, has made a name for itself by bucking the trends to identify more efficient, high-yield methods to bankroll the future. Their focus is on life insurance policies and how personally “investing” in a policy for, let’s say, your folks, can net you returns that dwarf those that’ll eventually trickle out of a pension fund.
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But you can’t be conservative with your investments. Laatz has seen guys who are earning substantial salaries only tucking away “R1 000 per month” to fund their future. “That’s nothing,” he says. “You have to be prepared to do more.” His best advice: go sit down with a “modern-age” financial planner who will steer you in the right direction and give you options beyond just the “tired-old” retirement savings vehicles.
Don’t Procrastinate
Laatz has noticed many guys are hesitant to take this first step, something he chalks up to fear. “It’s fear, and you can’t let fear drive you,” he says. “Rather do it now than later, because there’s no better place to start than right here, right now. I feel the biggest disease is procrastination—and that’s true for both your health and finances. Don’t procrastinate on it. If you’re diagnosed with cancer and you leave it, it’ll kill you… If you don’t have a financial plan in place, it will kill you; you’ll become a liability and nobody wants to be a liability.” Head to tigriswealth.co.za to find out more about what Laatz and his team offer.
