What you need to consider when investing for retirement

Target Amount

You aim to have accumulated an amount that will afford you the lifestyle you deserve at your desired retirement age. This gives you a goal to work toward and should be discussed and calculated with your financial adviser to ensure your path to achieving the goal is clear and structured.

Inflation

Factor in the erosion of purchasing power over time. The goal amount you save needs to account for inflation, ensuring it maintains its real value. In higher inflation environments a more aggressive saving and investing strategy needs to be implemented.

Expected rate of return

The growth rate of your investments over time, considering both interest and market performance. The longer you invest, the more predictable the return becomes so start as early as possible.

Risk Tolerance

Younger individuals can typically take on higher risk, while older individuals need safer investments. Higher risk has the potential to deliver higher returns and this risk should be adjusted as you progress through your investment timeline. It is always good to have an annual review of your investment performance with your financial adviser to evaluate how your investments are delivering in terms of your goal.

Tax Implications

Take advantage of tax-efficient savings vehicles like retirement annuities, pension funds, and tax-free savings accounts. The maximum you are able to invest of your income is 27.5% without a tax implication on your income. In other words, if you earn R10 000 per month you are able to invest R2750 every month and only be taxed on R7250 in simple terms. There may be a tax implication when you retire and this would depend on the value at the time.

Lifestyle Goals

Your target should reflect your desired lifestyle post-retirement, including healthcare, travel, and other living expenses. take into account that you may need to travel to visit children or grand children, your healthcare needs are likely to be higher as you get older and you are likely to be living on a fixed income.

Employer Contributions

Maximize any employer-provided retirement contributions or benefits, as these significantly boost savings. Discuss this with your financial adviser to ensure you do not incur any unnecessary taxtes.

Retirement investment journeys at different ages

Starting to Save for Retirement at Age 25

Time Horizon – You have 40 years to save and invest.

Compounding Interest – With a long-term horizon, compound interest works in your favor, meaning even smaller, consistent contributions can grow significantly over time.

Risk Tolerance – At this age, you can take on more risk by investing in equities or growth-oriented assets, which typically offer higher returns over time. By using a higher risk strategy at a younger age you still have time to correct any unforeseen losses should they occur but if you are using a certified financial adviser, you will likely not incur losses over the long term.

Monthly Contributions – You can contribute relatively smaller amounts due to the longer timeframe, while still reaching your goal. if your investments outperform, you will have options like retiring early or accumulating more. It is always a good place to be when you are able to choose.

Diversification – You should focus on building a well-diversified portfolio, as time allows you to recover from short-term market volatility.

Savings automation – Start an automatic contribution plan to ensure discipline and consistency. Setup a debit order to ensure consistency and do not consider it as part of your monthly income. This type of discipline ensure maximum returns. Consistency is key. It is almost impossible to time the markets. Consistent monthly investments will ensure that over time you reap the rewards.

Key Strategy – Maximize contributions early, invest aggressively, and take advantage of the compounding effect. This will give you options as you get older.

Starting to invest for retirement at age 35

Time Horizon – You have 30 years to save and invest, still a decent period but less than at age 25. You need to consider that we are living longer with the average age at death increasing steadily, with women living longer than men in the developed World.

Increased Contributions – You’ll need to contribute a larger portion of your income compared to starting at 25 since compounding has less time to work its magic. Invest as much as possible and if you reach the 27.5% of your income invested already, please consult your financial adviser on the most efficient way to invest any amounts above that.

Moderate Risk – You can still tolerate some market risk but might start shifting toward slightly safer assets (e.g., a balanced fund).

Income Growth – As you may have a higher income at this age, you should aim to allocate a larger percentage of your income toward retirement. Again, if over the 27.5% consult your financial adviser or a certified tax practitioner.

Catch-up Contributions – Consider additional or voluntary contributions to retirement accounts to close any gaps if you’ve delayed saving.

Key Strategy – Increase savings rate, remain moderately aggressive in investments, and take advantage of any employer contributions.

Starting to save for retirement at age 50

Pay off any debt first – Debt is expensive and should be at an absolute minnimum by this stage of life. Perhaps you have changed jobs a few times and been invested in various retirement or pension fund schemes, check if there are any outstanding unclaimed benefits in your name. It is also a good idea to check any deceased family member ID numbers for unclaimed benefits you may be entitled to.

Time Horizon – You have only 15 years, so time is limited, and compounding has less impact. Perhaps you are an entrepreneur or suffered a significant loss, you need to pay special attention to your investing in order to be able to retire comfortably.

Significant Contributions – You’ll need to save a much larger portion of your income, likely around 30-40% or more to achieve your retirement goals.

Risk Mitigation – Shift toward more conservative investments (e.g., bonds, dividend-paying stocks) to preserve capital and reduce exposure to market downturns.

Retirement catch-up Plans – Utilize any retirement catch-up contribution options available, often offered to those 50 and older.

Expense management – Focus on minimizing lifestyle inflation and consider cutting non-essential spending to boost savings.

Delayed retirement – Consider delaying retirement by a few years if you’re significantly behind on savings, to give yourself more time to contribute. Perhaps consider starting a small business to supplement your retirement income.

Key Strategy – Prioritize large contributions, focus on low-risk investments, and consider working longer if necessary to meet the target.

Key strategies by age

Age 25: Focus on long-term growth, aggressive investments, and small contributions early for compounding benefits.

Age 35: Increase contributions, maintain moderate risk, and take advantage of employer match or tax breaks.

Age 50: Maximize contributions, prioritize capital preservation, and consider delaying retirement if needed.