By Monica Mynhardt
Amid the current economic policy uncertainty in South Africa, it is important to make sure that you have as much certainty as possible about your own finances and future. It is also important to make provision today for your future life and retirement. It is crucial to understand why pension funds are important; what the best time is to start contributing; and the amount of money you should save in what kind of products to create long-term financial security for yourself.
This June the Solidarity Research Institute, in collaboration with Solidarity Financial Services and S-leer, will conduct an information campaign regarding pension funds. A series of four articles will be published in the run-up to a webinar at the end of the month. The articles will cover specific questions: Why is it important for me to save for retirement? How much money should I put aside to be able to retire comfortably? Where do pension funds fit in with regard to the broader economic context? Will my money be safe?
What are pension funds?
Pension funds are investment funds in which you usually invest money on a monthly basis for the purpose of creating financial security for retirement. Over the years, these contributions accumulate exponentially due to compound interest. After retirement, the annuity, also called a pension, will then be paid to you to replace the monthly income you earned while you were employed.
Why is this of such crucial importance?
Although people often forget this, a monthly pension payment replaces a retiree’s monthly salary. People underestimate, and often also forget, exactly how high the monthly cost of living can be. Therefore, the pension payment should be enough for you to maintain your standard of living after retirement. In addition, the cost of living increases when a person grows older. Over the years, inflation also increases the everyday cost of living. In addition, aging goes hand in hand with a rise in medical costs, therefore with an increase in living expenses. That is precisely why it is crucial to save enough money for retirement.
People who do not save enough money during their working lives for them to retire comfortably, are confronted with major challenges when they reach retirement age. The options then left to them when they reach retirement age, are to be dependent on their family for an income, or to live on a state pension.
None of these options is optimal. It is particularly difficult to be forced to carry on working in your old age just to earn a living. Retirement is actually the time when you should not be forced to work in order to earn a salary; on the contrary, it is a time in which you should only work if you actually want to do so. If you are going to rely on your family to look after you after you retired, you run the risk of being deprived of that income at some stage. The moment you become dependent on a single person for an income, you run the risk of losing that income. The monthly state pension in South Africa is currently R1 780 for pensioners between the ages of 60 and 75, and R1 800 per month for pensioners older than 75. That is hardly enough to simply survive. However, retirement should not be a time of merely surviving; it should be a time of rest and enjoying the fruits of your lifelong labour.
This information campaign in June aims to equip you as well as possible for the future. A good savings plan is essential for retirement. Pension funds play a major role in that planning. By making an effort early on to understand how pension funds work, and by investing in one, you will create the best possible chance for yourself to retire comfortably someday. With pension funds and good planning, you will be able to create as much financial security for yourself as possible amid turbulent economic conditions. Pension funds are the way to create a prosperous future for yourself today.