How to play retirement-savings catch-up

Change has impacted every South African – economically, socially and politically. South Africa is facing a retirement crisis – as is every other country in the world. The majority of over-50 year olds have, to date, saved less than we should and at this rate, when the so-called “magic” day comes, we will not be in a position to go on retirement, or we will exhaust our retirement income too early.

How did we get into this fix?

There are several reasons – most of us have been fortunate enough to be able to work hard, but unfortunately we needed every penny to get by. We have had poor spending habits and this has led us down the road to debilitating debt. In the past we may have “borrowed” money from our retirement fund or access bond in order to pay for medical and university expenses.

So with our uncertain economy and skyrocketing healthcare and energy costs, retirement may seem a little like a nightmare. South African households run the risk of not having enough money to maintain their living standard in retirement. It’s a pretty grim picture.

However, we are living longer and longer. We should not have to spend our years up to retirement, living a life that is filled with the anxiety about outliving our money?

We are going to look at ways in which you can possibly make up the shortfall.

1. Assuming that you are on a company retirement scheme, boost your retirement contribution by investing the absolute maximum in your retirement plan. This should assist in getting you closer to your retirement goal.
2. Pay off your home mortgage as quickly as possible.
3. Put a plan in place to pay off all debt that you may have – credit cards, store cards, personal loans etc. Reduce your standard of living now, and you could be a household that is able to maintain its standard of living in retirement.
4. Save more. Invest in mutual funds or individual stocks geared towards growth.

Another alternative is to work longer than planned, if you are in the situation to do so. Research shows that most baby boomers, assuming good health, will try and work past the age of 65.

Time is anyone’s biggest weapon in saving for retirement. Advise your children to start saving seriously for retirement at age 25 – 15% at least annually. If young people can get their financial house into order at an early age, they might even be able to retire early, depending on how the market goes.