Retirement planning: why and how

Did you know only 3% of South Africans will be able to retire comfortably? Ronel Jooste advocates why it is important to start saving from as early as possible.

Only 3% of South Africans retire comfortably

According to the National Treasury, less than 3% of South Africans can retire comfortably, without having to make drastic changes to their lifestyles.

These statistics are worrying. Do you want to work hard all your life, only to struggle financially when you are retired? Or rather work hard and putt away sufficient funds towards your retirement to ensure you can reap the full benefit of your rest period in future.

High cost of living in SA

Living costs in South Africa are high and constantly on the rise. A struggling economy results in several employers no longer being able to reward employees with decent salary increases.

Consequently, many households experience financial strain as their income can no longer keep up with the increase in living costs. If you add to an already trembling budget, a medical condition that requires constant healthcare and medical expenses, budgets are put under further strain.

When expecting this strained budget to also make provision for retirement planning, it becomes crystal clear why retirement planning quite often ends up last on the priority list.

Types of retirement products

Retirement products are designed to help individuals save money towards retirement, usually with tax benefits. The purpose is to provide individuals or their dependents, with an income upon retirement. This income can be paid out in the form of a lump sum and/or a monthly pension until death.

Most employers structure retirement benefits as part of their employees’ remuneration packages. Examples of retirement benefits offered by employers are as follows:

  • Pension fund – on retirement, a lump sum, in cash, equal to one third of the total retirement value, plus an annuity/monthly pension over the rest of the lifetime of the employee are paid out.
  • Provident fund – the full benefit is paid out as a lump sum upon retirement.
  • Preservation fund – when you change jobs, or become self-employed, and don’t cash in your pension, a preservation fund enables you to preserve your pension or provident fund savings in this fund until you retire. A once-off contribution is thus made into a preservation fund once you resign or are retrenched.

Retirement annuities are available for individuals who are self-employed, or who work for a company that doesn’t offer pension benefits, or for employees who want to save for their retirement in addition to their existing pension or provident fund contributions through their employer.

Making your budget work for you

Living with diabetes does have a serious impact on any budget due to expensive medical costs. Therefore, it is important to have a good medical aid or health insurance plan in place to cover most the costs.

Also look out for potential savings:

  • Live a healthy and active lifestyle.
  • Discuss options for generic medication or alternative healthcare options with your medical practitioner.
  • Consider buying medicine online which is often cheaper, and buy medicine from pharmacies who offer discounts and loyalty reward programmes.

Potential cost savings can be allocated to a retirement savings plan. Although diabetes is a serious illness that can have a negative impact on a person’s life expectancy, more and more studies are proving that when diabetes is properly managed through healthy lifestyle programmes there is a minimal impact on the life expectancy of a person living with diabetes compared to a person living without diabetes. This re-emphasises why retirement planning should not be neglected.

Why start saving as early as possible?

Consider a simple example to bring this into perspective. Previous generations generally started working after school at the age of 18. If they had to retire at age 65, they would have had 47 years to save for retirement.

In those days people died on average at a much younger age. If they lived on average to age 75, they had 10 years to live off their retirement savings. Thus, they had 47 years to save and their savings had to last 10 years.

These days many people go to university or college and only start working on average at age 23, which means they have already lost five years of their potential retirement savings period. Current generations tend to live much longer, and it is not uncommon for people to reach 95 years of age. The result is that we have about 42 years to save for retirement, and our retirement savings must last for 30 years should we reach age 95.

This simple example illustrates why it’s important to start saving as early as possible for retirement. If you haven’t started yet or you are not saving enough, don’t wait any longer. Start working towards creating a solid retirement plan today.

Tips to consider for your retirement planning:

  • Calculate how much you will need for retirement and review it annually. As your salary package grows and your standard of living improves, your expectation regarding retirement savings will increase as well.
  • Be realistic and make sure you save enough. If your monthly living costs are R40 000, for example, and you consider your second property providing you with R10 000 rental income monthly as your retirement plan. You must realise that R10 000 will not be enough to cover your living costs. Additional retirement savings will have to be added to your retirement plan.
  • Don’t be tempted to use your retirement savings to start a business or buy a bigger home. Once you have used your savings, it will be extremely difficult to catch up or recover.
  • You can get tax deductions for your monthly contributions towards your retirement savings. Make use of these tax savings to build a tax effective asset portfolio.
  • Younger people can be much more aggressive with the underlying asset allocation of retirement funds. As you get older, it is advisable to be more conservative. You don’t want to invest in high-risk assets a few years before retirement with a risk of losing the money that you worked hard for over many years.
  • Don’t be tempted to buy expensive cars or a holiday home on receiving a lump sum retirement pay-out. Invest your lump sum wisely as you need the money to maintain your required living standard throughout retirement.

This article includes extracts from Financially Fit and Wealthy. The book (hard copy or e-book) can be ordered on


Ronel Jooste is a director at FinanciallyFiT Group (Pty) Ltd, a company specialising in financial consulting and training for businesses and individuals. She develops online financial courses and employee financial wellness programmes. Ronel is a chartered accountant, speaker and the author of the award-wining book Financially Fit and Wealthy, a guide to achieve financial success.

Header image credit by Freepik 

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