Saving for a comfortable retirement? Here are five steps to ensure you have enough

Saving for retirement is becoming ever more important in a country such as South Africa, where, according to the National Treasury, only 6 out of every 100 South Africans will be able to retire comfortably.

As the penny drops and more consumers realise that they will have to do more to guarantee a comfortable retirement, more and more turn to direct investments on online trading platforms to try and boost their retirement savings, but this is a high-risk strategy, that ignores the fundamentals of proper retirement planning, says Dieter Schmikl, a financial advisor at employee benefits firm NMG Benefits.

“As more consumers get educated and digital, we hear many stories of people making quick money trading forex or shares online, but that is not how you plan for retirement. The fact is that if something sounds too good to be true, it probably is,” he says.

Schmikl’s advice is to follow these five steps to look after your priorities and put yourself on the road to good financial health and a comfortable retirement:

ALSO READ: Bleak reality of retirement in SA

Step 1: Spend less than you earn

Find a lifestyle that gives you the capacity to breathe financially and enjoy the quality of life that you want, with some money left over every month to save or put away for your retirement, says Schmikl.

 Step 2: Take care of risk

If you cannot earn an income due to injury or illness, who will pay your bills and take care of your monthly obligations? Before you save for anything else, make sure you have income protection in place. This is a critical part of any balanced financial plan, with a long-term view to a secure retirement.

ALSO READ: Your house is not a retirement option

Step 3: Make provision for retirement

The most common reasons that most South Africans cannot retire comfortably is that they start saving too late for their retirement, or not enough.

“Retirement funding is a numbers game. It is critical to sit down with an advisor and work out how much money you will need in your retirement, how much you have, and what the difference is,” says Schmikl.

The rule of thumb is that if you start saving 15% of your earnings at the age of 28, you will be able to retire comfortably at 65, with 75% of your earnings. The later you start, the higher this percentage will be.

If you do not have enough retirement savings, do a quick calculation. For every million rand you have in retirement savings, you will get around R4 000 per month at sustainable draw-down levels, increasing with inflation.

“Ask yourself how much you will you draw down per month to support your lifestyle. Can you put away more every month? Or do you need to carry on working for a few extra years? If your house and car are paid off, you probably need less than you think.”

Step 4: Consider short-term investments

When, and only when, you have taken care of your risk and retirement, you will be in a position to start looking at short-term investments, such as unit trusts, but it is important to focus on the investments you want to invest in and try to diversify your portfolio to smooth out the bumps along the road.

ALSO READ: How to plan to not retire

Step 5: If you still have money left, go high risk for retirement

While we are bombarded daily with ads that promise exponential returns through trading forex, cryptocurrency or equities, feel free to dabble if you have some spare cash, but remember while many of these platforms offer high rewards, they generally come with high risks too. Y

ou will not turn R10 000 into millions in the space of three years. It does not work like that, Schmikl says.

“Ultimately, retirement is all about diversification, spreading your risk and beating inflation on an annual basis. If you get that right, you will be able to retire comfortably at the age you choose.”

Financial adviser at Consult by Momentum, Johan Werth, says you cannot save for retirement like your parents did. “Even if your parents invested wisely and are now enjoying a comfortable retirement, the retirement landscape has changed over the years and with it, so should your investment approach.”

“Many of us are not in a position to increase our retirement savings beyond 15% of our monthly income,” says Werth. The solution?

“Try to delay your retirement for as long as possible and consider supplementing your income with a ‘side hustle’ or alternative revenue stream, to help bolster your retirement savings.”

Werth says consumers do the same things during the different decades of their lives. In your 20s or 30s, many people plan a wedding or start a family and direct the bulk of their funds towards these milestones.

ALSO READ: Paying off your bond vs investing: What to consider

“We also find that this age group typically prioritises everything else except retirement, such as luxury vehicles and international travel, but these savings should not be postponed or neglected.”

Consumers in the 25 – 35 age category tend to switch jobs more frequently and cash in their retirement savings.

“Before you do this, consult a financial adviser who can do the necessary calculations around the real cost of cashing out your savings. There are often huge taxes involved with dipping into this pot prematurely and the setback to your retirement plans is often not worth it.”

If you are older than 40, you should measure your progress against your financial goals far more frequently than in your 20s or 30s, Werth advises.

“Around the age of 45, or 10-15 years before retirement, it is a good idea to revisit your risk tolerance and ensure that your portfolio is well-diversified. Always work with a qualified financial adviser who can help you understand the various risks in the market at any given time.”

As you near retirement, now is not the time to be taking on new debt or looking at high-risk investment opportunities.

“Here is where you need to reduce your expenses, increase your contributions and preserve as much as possible for your looming retirement.”

Werth warns if you do not take ownership of your finances now, no miracle will happen when you retire at age 65.

“We need to play an active role in planning, saving and preserving our funds towards our later years, if we want to enjoy a comfortable retirement. This is where you need to get real about advice and partner with a financial adviser who will help guide you on your journey to success.”