Beat the pitiful retirement-income average
South African retirement fund members are retiring with less than half the income they will need, a leading survey shows.
The contribution rates and returns of most retirement funds are designed to deliver savings that will buy a pension equal to between 60% and 75% of income at retirement, but current members are on track for a pension of only 42.9%, Alexander Forbes's research shows.
The biggest problem is that more than 80% of members withdraw their retirement savings when they change jobs. Far too few are planning - only 13% of people aged 35 and older have a comprehensive retirement plan that they are implementing and only 7% of people currently aged 25 to 35 have such a plan, a recent 10X Investments survey shows.
No matter what age you are, you can still plan for a better pension by following these simple rules:
Set a retirement goal and establish the numbers that will achieve that goal. For example, if you want a pension equal to 75% of your income at retirement, you need to save 15% of your income for 40 years and earn an average return of 3% above inflation and net of fees, 10X Investments says.
Check you are not saving a percentage of only your pensionable salary, which may exclude the bonuses or car allowances that make up your total pay, Alexander Forbes says. For example, a pension target of 75% of your pensionable pay - when pensionable pay is only 70% of your total pay - will result in a pension of 52.5% of your pre-retirement income, the Benefits Barometer says.
Remember, your employer's contribution may include premiums for group life and disability cover, which reduces the amount allocated to your retirement fund.
Save for long enough
If your retirement savings goal dictates that you need to save for 40 years from age 25 to age 65, starting late, or retiring early, will not only lower your contributions but lessen the effect of compounding. Use our Money Guide to determine how much you need to save for retirement
Withdrawing your savings instead of preserving them in another retirement fund means the formula designed to deliver a particular pension will not work, and it also has negative tax consequences.