Friday, October 30, 2015

Is retirement just a fantasy?


The earlier you start saving for retirement the longer your money can grow.

Remember compound interest, giving you greater financial security for retirement. If you haven't started saving for retirement you need to start immediately. Retirement savings are probably the most critical savings you can contribute towards, and should never be delayed By not saving for retirement, and not saving the appropriate amounts will group you amongst the 91% of South Africans who are unable to retire comfortably.

Are you among the 9% who have made adequate provisions for retirement?

So what is a comfortable retirement financially?
On the day of your retirement, if you are able to draw 80% or more of your final salary every month, for the rest of your retirement, then you have made adequate provisions. Being debt-free on the day of retirement, and remaining debt free throughout retirement, is vital to ensuring you also enjoy a comfortable retirement.
   
Currently, 29% of pensioners still have debt. Paying debt with just the income from retirement savings leaves little to live on. Your goal should be to pay off all debt, including your bond, credit cards, loans, hire purchase agreements and vehicle finance at least five years before your expected retirement age, thereby freeing available funds to invest more towards your retirement savings. You may be drawing 80% of your final salary, but something to consider is up to 50% of pensioners are currently supporting family members. Will you be supporting any family members when you retire? Factors of longevity and couples having children later in life, means that you may still be supporting parents and children - parents needing expensive medical care and children still requiring housing and financial support for tertiary education.

Be realistic about your situation and ensure that you have made adequate provisions for retirement if you know, or suspect, that you will have to support family rembers during your retirement.
Are you creating real retirement savings or living in fantasy land, hoping that retirement won't be that bad? Think you'll be able to work after retirement to supplement your savings? Will you have the energy; physical capability and medical fitness to complete a full day's work at age 70, 72? - how about at 80? How much will your lifestyle change: will you have to take over chores that were previously undertaken by staff in your employ, like gardening, house cleaning and general maintenance? Will you still be able to employ people to perform these tasks? If not, will you be capable of completing these tasks regardless of your age?

Have you budgeted for medical expenses in retirement?
The current trend of retirees is to downgrade medical aid options to hospital cover, but as you age the need for comprehensive cover becomes greater as many chronic diseases need appropriate treatment with regular visits to specialists with regular medication. With medical inflation reducing the value of your rand even further, medical expenses will cost more in retirement than today. In the US, couples retiring need $240 000.00 to cover medical expenses. However, most have only budgeted $5 621.00 a year. This amount equates to less than half of what is required if retirees live for 20 years after retirement.

As a result of these retirement savings shortages, one in seven retirees have taken a smaller dose of medication to reduce costs, and a fifth have skipped at least one prescription in the last year alone. In South Africa, medical inflation at 9.8% is higher than general inflation of 6.3%. As inflation reduces the value of your rand, the amount that you have saved towards retirement reduces in value during retirement: R100.00 today is worth more than R100.00 in five years time. With medical inflation reducing the value of your rand even further, medical expenses will cost more in retirement than today. Have you budgeted appropriately for medical expenses that will need to be paid during your retirement?

Source: www.fnb.co.za

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