Retirement sounds great: you don’t have to rise early, get stuck in traffic, and you can come and go when and where you please, but should you retire tomorrow, will you receive the ideal income or will you be confronted with harsh reality?
Few people have enough money on retirement to maintain their lifestyle and most of us realise this too late. Most people prefer not to think of it or are unrealistic about what they will need on a monthly basis. Many finance experts confirm that the absence of a financial plan or savings strategy bode ill for your future. However, in today’s difficult economy, for many South Africans saving for retirement is not a priority.
Firstly, there are school fees, then university fees and when that is all over and you can at last breathe a bit easier, it’s too late to start with any plan. If you can barely put food on the table and live from day to day, saving is the last thing on your mind. How can you save money if you don’t have a cent left over at the end of the month? What will you do when you reach the compulsory retirement age?
If you earn a big salary, it’s easy to talk about pension, provident and retirement annuities and how much tax benefits these provide, and how useful they are when it comes to your financial planning, including planning your estate. Prior to retirement you (who earn a big salary) will most probably be a member of one, two or even three of the above-mentioned retirement funds.
Retirement at 60 is the prospect of few people, and many have to work as long as possible, but there comes a stage when you will no longer be able to work. Health problems or medical disability can also mean that you might have to stop working before retirement age.
But what do you do if you cannot afford a retirement fund and your work doesn’t offer their employees this option? Will you then be dependent on SASSA? A SASSA allowance for the elderly is paid to persons 60 years and older, but what will you do with just those few Rands?
When people start asking you: Have you saved enough for retirement, or, one of these days you are most probably going to receive a great pension, you summarily get hot under the collar. Someone who earns pots of money doesn’t understand why you don’t have enough with which to retire.
If you are in this situation, get yourself a piggybank today! Seriously!
Following are a few tips if the above applies to you:
Manage your expenses
- Begin and determine exactly how much money flows in and out of your bank account.
- Live strictly according to a budget.
- Every day put your small change in a piggybank WITHOUT taken it out again. Try to put in R100 per month and deposit it in an account from which you cannot withdraw it.
- Buy cheaper, buy smarter. Use apps or rewards cards that give you discount on products. Plan your menu for the week and stick to it; avoid stopping at the shops unnecessarily.
- Take a look at your insurance: that is, if you can afford insurance.
- Take out a cheaper TV package if you don’t have OpenView HD.
- Don’t incur more debt.
- These days many people find it impossible to live on their income. The only way to survive is to earn an extra income, but then SARS takes as much as 25% of your second income for tax. Be clever.
- If you smoke, start making sums right now. What does it cost you per month to smoke and how much per year? By putting out that cigarette you will save a considerable amount per year. It will also make a big difference to your medical expenses.
- You don’t pack a lunchbox, buy a cappuccino at work at R7.00, this amounting to R140.00 per month, plus a packet of chips at R5.00, adding more or less another R100.
- Write down what you spend every day.
- Don’t wander around in shopping centres; you will only make unnecessary purchases.
Make sure you claim on your tax
Many people make the mistake of overlooking tax benefits that certain products offer. If you remember this benefit, there are quite a number of savings and investment products available, of which the proceeds (interest, dividends, REIT income and capital gains) are handled differently by the Receiver of Revenue.
Contemplate tax-free investments. These kinds of products’ yield is tax-free, as well as the income that you might withdraw from them in future. Unfortunately, you are limited as to how much you can contribute to these kinds of products.
A 2019 report on old-age homes by Solidarity Helping Hand indicates that:
- Approximately 40% of the elderly are fully dependent.
- In an old-age home the average tariff for accommodation in a single room is R6 619, R8 461 for a double room and R7 591 for the frail care unit. Almost 40% of the elderly receive a government allowance.
- A resident’s contribution amounts to R984 to R3 541 per month.
- Approximately half of the residents receive a SASSA allowance of about R1860, which has to cover their accommodation, but does not provide for full accommodation costs. Other expenses such as groceries, medical expenses, spectacles, nappies, hearing aids etc. aren’t even taken into account.
- Almost half of the elderly (47%) have no access to a medical fund and have to rely on the government’s medical care.
- Approximately 83% of the elderly have children, half of whom make a financial contribution.
Unfortunately, this is the reality; not everyone retires with millions and can afford a home of R1.7 million in a retirement village.
Consult an accredited financial planner to assist you to determine your requirements if you have questions such as the following: How am I going to retire someday? What will I do for an extra income? How will I do it so that the Receiver won’t tax me on it? Where will I live?
Visit www.citadel.co.za to complete the questionnaire.