The definition of retirement is different for everyone. Picture: 123RF/ANDRIY POPOV
The definition of retirement is different for everyone. Picture: 123RF/ANDRIY POPOV

Q: I am a single mother of two, nearing 60 and, for varying reasons, haven’t saved enough for my retirement. I am still working (for myself) and have some savings. But I need more. Any ideas how I can add to my savings? — W Martin via e-mail

A: Ricardo Teixeira, Certified Financial Planner® professional at BDO Wealth Advisers, answers:

The definition of retirement is different for everyone. The traditional meaning is associated with one stopping work and living a life of leisure. However, the reality is far from that.

Most “retirees” continue to remain engaged and active after formal retirement age and generally only slow down when they choose to. Determining how long you plan to work for yourself, as you now are, is a key date in your financial planning and a financial planner can help you calculate how much money you are likely to need to fund your retirement.

The gap between how much you have and how much you may need, is the savings gap you’re looking to fill with any one or a combination of these strategies:

  • Spend less than what you earn. It is a powerful habit to master to create wealth. Critically assess your spending and prioritise needs over wants.
  • Consider a second income to top up your earnings — something you can do or be involved in outside your current business commitments. Reflect on your interests and hobbies, teaching a critical skill or mentoring someone. Could you convert this into a source of income?
  • The upside of being self-employed is that you are able to continue being involved in your business for as long as you want. Explore strategies to grow the business and employ a successor so that you don’t need to sell when you want to slow down and still draw earnings from the business.
  • Terminate debt and redirect any debt repayments to your savings. Consider selling any assets you own that are not essential to your retirement plan and use the money to settle any debt now. The interest you will save alone will far outweigh the emotional attachment of keeping an unwanted or non-essential asset.
  • Maximise your contribution to a retirement annuity. Take advantage of the tax saving. Instead of just saving after tax money, set up and contribute regularly to a retirement annuity. You can claim a maximum tax of R350,000 a year for retirement contributions, and the investment growth in a retirement annuity is tax free.
  • Lastly, be invested. Having savings in a bank account is not good enough. To create wealth and keep the purchasing power of your money, you need to be invested in listed equities. Cash is great but it devalues over time due to inflation and tax.

Investing and saving are actions that are founded on good habits and discipline. Getting started is difficult. You are on the right path by asking the question you have. Next is to act.

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