South African’s are simply not prepared for retirement and in excess of 80% of all South Africans who contribute to a pension fund will not be able to retire comfortably.
This is a sad reality for South African workers and with the State pension currently paying out a little over R1000 as a State pension, you should be very worried indeed.
Why is this figure so low?
There are many reasons, but here are a few of the most common reasons which you can apply to your personal financial behaviour to give you an idea if you are preparing yourself well for your retirement.
Let us first understand that contributions to pension funds are designed to give you a monthly income for your retirement equivalent to 80% of your final salary excluding benefits like travelling allowances, car allowances or housing allowances providing your contributions have been consistent for 40 years.
When you change jobs do you place your retirement funds into a preservation fund or retirement Annuity?
Some funds allow you to leave your funds in their retirement fund making you a deferred pensioner. In some cases it is possible to transfer your accumulated retirement funds from your previous employer to your new employers retirement fund.
It is essential to do one of the two above in order to ensure that the growth in your retirement funds is in line with expectations.
Are you contributing sufficiently?
The mistake so many people make is that they are not taking into account the perks and allowances when calculating their retirement contributions. Allowances and perks are not taken into account when calculating contributions to your retirement fund.
For example, if your salary is R30 000/month and you receive additional perks in the form of car allowances, petrol allowances or similar, these amounts are not taken into account when calculating the required contribution and if you continue to contribute at the level you are now, your pension payout will be 80% of your final salary excluding the car and petrol allowance.
If this is the case you MUST consult a financial advisor to determine the amount of the additional savings you need to make in order to bolster your retirement funds.
Are you adequately insured for unforseen hospitalization?
Hospitalization can be financially crippling, ensure you have an inexpensive hospital plan that offers daily cover.
Are you investing in risky portfolio’s?
Retirement funding should not be high risk but show steady growth. Any additional retirement investments you make can be put into higher risk investments but cater for your retirement first.
If you are making any of these common mistakes, call your broker or financial consultant, go and see the fund manager in your company and take the steps to rectify your pension savings as soon as possible. Remember, the longer you leave it, the more difficult it will become to ensure a secure retirement.