Glacier by Sanlam promo 6.8.2016 12:01 am

Don’t leave yourself short of cash when you retire

Work out how big your retirement nest egg will be.

Most South Africans are headed for their “golden years” with a very tarnished idea of how to prepare for retirement and no idea how much money they’ll need when they get there.

Independent life strategist Justin Cohen points out many of us will live a good 30 years after our last day at work and longevity in itself poses a major threat to whatever savings we’ll end up with.

“What do you want? This is a question people don’t ask themselves when they get up in the morning or at any time during the day. A lot of disappointment comes from that,” he says.

To try to bridge this “realisation gap”, Glacier has devised a novel project, the Glacier by Sanlam #FutureFWD retirement campaign, using their online income calculator to contrast dream retirement with current savings.

The newly developed online calculator allows you to work out what your actual monthly retirement salary will be in today’s value.

Glacier by Sanlam took three ordinary South Africans with ordinary careers and ordinary savings and asked them what their perfect life would be.

The three – Josephine Mbire (customer support manager), Deon Koch (civil engineer) and Karin Hendriques (communications manager) – gave their answers and these were used to put together a video of their dream lives.

They were then presented with an envelope containing their retirement salary in today’s terms and asked if they were prepared to live with such a salary.

All three declined. Yet unbeknown to them, they were declining the salary they’re going to give themselves when they retire.

Jaco-Chris Koorts, actuarial consultant at Glacier by Sanlam, explains: “The calculator tries to quantify a very difficult concept, which is your retirement income. It does this by taking into account the capital amount that you have saved for retirement thus far, as well as the contributions you are making and probably will make in your career until you retire.

“It considers this accumulated capital amount, taking into account the likely future growth in your salary, and also incorporates a user-selectable investment return which is based on your investment risk profile.

“It calculates the likely total retirement capital amount at your chosen retirement age and calculates the estimated income you will be able to get during retirement and shows you this in today’s terms, compared to your current salary.”

Because retirement is so far in the future, most people don’t realise that what they save and spend today will have a material impact on their retirement income. “If you don’t make sufficient provision today, you won’t be able to mend that problem when you hit retirement,” Koorts warns.

“It may come as a shock when you realise how small your estimated retirement income is. However, it is better to realise it while you can still do something about it today,” he adds.

People need to realise they are earning two salaries – one to fund their lifestyles and the other to pay themselves an income when their careers end.

Koorts says the best advice is to start saving early because of the power of compound interest.

“Your savings early on will contribute the most to your retirement savings, even if they were relatively small amounts.

“Saying you’ll make bigger contributions when you’re earning more is a very dangerous way of going about it.”

Cohen says the challenge is very simple: people need to ask “what do I want out of life and what do I have to do to accomplish it”.

“People very often don’t have a clear picture of what they want, but even if they do have one, they have no idea how to fund it,” Cohen says.

And remember, you get income tax relief when putting money into retirement annuities and other retirement savings products. In the case of a retirement annuity (RA), you can now allocate up to 27.5% of your salary into an RA, whereas it used to be 15%.

Since pension contributions are subtracted from your income for tax purposes, depending on how you do it, the SA Revenue Service can in effect fund up to 41% of your retirement savings.

“The first thing to do is be clear about what you want, then break it down into goals with a deadline.

“But remember, you eat an elephant a bit at a time. It’s what you do now that will determine future success; every day, you want to take charge.”

That means breaking goals down into sub-goals (Cohen calls it “being granular”) that are specific and measurable.

“You need to cut spending and for that you need a budget. Remember: you can be earning a great income, but you can be poorer than people who earn less. So it’s not about what you earn; it’s about what you keep.

“Rich people get rich by living like they’re broke; poor people get there by living like they’re rich,” Cohen says. Frugality is a key characteristic of the rich.

When it comes to pricing your dreams, it’s best to turn to a financial adviser.

Remember, you’ll need to take into account things like inflation, what your investment portfolio should consist of and what proportion of your income you are going to allocate towards retirement savings.

Brought to you by: Glacier by Sanlam

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