Think carefully about your retirement

Kevin Yeh, founder and key individual of Daberistic Financial Services, addressed the financial challenges which accompany retirement at an Ekurhuleni Business Initiative (EBI) meeting in Bredell, Kempton Park recently.

Yeh discussed the following topics:

•When should one start retirement planning?

Yeh suggested people start saving as early as possible, during their first job, preferably.

•Trends with retirement planning

According to Yeh, increases in urbanisation, educated people and people who don’t marry, have led to a decrease in the birth rate.

“In the past, people had a big family, in the hope that the children would care for their parents after retirement, but with fewer children, people can’t rely on that anymore.”

Yeh said with economic development, the rising standard of living and advances in the medical field, people are living longer than before.

“Retirees can nowadays be expected to live another 25 or 30 years longer in South Africa,” he said.

Subsequently he asked the question: “Will you have enough money to live for 30 years without working?”

Another concern is inflation.

The risk exists, that your income during retirement cannot catch up with inflation.

•How to start retirement savings

Yeh said the first steps are to start saving at one’s first job and to get help from a financial planner.

“Save at least 15 per cent of your income into investment vehicles until you are 65,” he suggested

Yeh advised to diversify by investing in at least three different products.

•Pre-retirement investment vehicles

Retirement annuity: “This is a product offered by insurance companies and some investment firms,” Yeh said.

“You can place up to 27.5 per cent of your taxable income into a retirement annuity account, to build up until retirement.

“This money is then exempt from taxation.”

Property is a physical investment which carries capital protection.

It increases in value over time and rental income can be drawn from it.

“The only problem is tenants have to be managed and the properties must be maintained,” Yeh said.

Shares are another option.

“You share in the profits and losses of a company and can receive dividends.”

According to Yeh, the Johannesburg Stock Exchange has had an annualised return of nearly 16 per cent since 1961.

“One has to be careful with shares though, as they can be volatile.”

Unit trusts or tax free investments were next on the list.

“Professional money managers manage finances on your behalf,” Yeh explained.

He said the expected annualised return can range between 10 and 12 per cent, after fees.

The financial planner also suggested starting a business as a way to generate funds before retirement.

“Building a successful business can be a great way to creating wealth, but has risks and needs courage and initiative to get started,” Yeh said.

Gold is a way to store value.

It does not give interest or dividends, but increases in value over time.

“Investors can hold physical gold in the form of Krugerrands or invest in the Newgold exchange traded fund (ETF),” Yeh said.

This ETF tracks the dollar gold price, but is itself bought and sold in rand.

The last suggestion Yeh made is investing in currency, such as the US dollar.

“The US dollar is the reserve currency of the world,” the financial fundi said.

“It is a hard currency and allows you to invest offshore.”

Also read: