What does your future look like? It may seem like a question for your future-self, but the reality is only 6% of South Africans are equipped to maintain their current lifestyle in a future that’s longer and busier than before. We spoke to Sanlam Financial Adviser, Johann Steyn, about the importance of making smart saving decisions today to secure a better future tomorrow. Here are his five tips to get you on the right track.
- Start saving early
Because we’re living longer, we have to save more than our parents or grandparents did to make our savings last a lifetime. “The easiest way to make provisions for tomorrow and have the least impact on your cash flow is to start as soon as you start earning an income.”
Your savings will benefit from compound interest. Also, if you put a fraction of your salary away every month starting with your first pay cheque, you’ll find your lifestyle will adapt accordingly – you can’t miss an amount that you’ve never been available to spend.
- Live within your means
South Africans are greatly influenced by a culture of conspicuous spending. By living beyond our means, we often accumulate financial debt, making it hard to save for the things that really matter.
Consider that the life you live today impacts your tomorrow – not to say you shouldn’t enjoy life in the moment, but it’s good to remember that by living a little smaller today, you can ensure a bigger, better tomorrow.
- Plan for hidden costs
Imagine you’ve reached the age where you’ve stopped working. What does your lifestyle look like? Write down all the costs involved and work out how much money you’ll need on a monthly basis. You can also work out your retirement salary using the Glacier Retirement Salary Calculator.
Certain expenses, like school fees, won’t continue whereas other expenses like medical bills will most likely increase. There may also be other costs, such as supporting your parents through their own retirement. Remember, it’s not about how much money you have; it’s about how much you have in relation to your lifestyle and expenses.
- Find an investment fund that’s right for you
When saving for the future, it’s important to choose a product that suits your needs best. Remember, as an employee, you have an option to maximise your contribution toward your retirement savings. You can contribute up to 27.5% of your earnings. Here are some of the different ways you can invest your money for the future:
Retirement Annuity
The most common and favourable way to save for the future. An RA is a long-term, fixed- term solution and is best known for the tax benefits associated with it. Take a look at our wide range of retirement annuity solutions.
Pension Fund
This option is usually obtained through an employer or government body. When it’s time to retire, a portion will be distributed monthly – there is no option to take out the full payment as a lump sum.
Provident Fund
Saving with a Provident Fund allows you to withdraw your retirement savings when you retire. Like the Pension Fund, this fund is usually obtained through an employer or government body. The dangers of obtaining a lump sum, however, is that the money tends to deplete quicker.
Preservation Fund
The Preservation Fund allows you to invest your retirement savings when you leave an employer instead of taking everything in cash and paying the tax. This fund will then pay you a specified amount on a monthly basis.
- Life after work: Change your mindset
“Millennials don’t think about the employment sector in the traditional way.” A lot of the younger generation focus on building a career – preferably something extraordinary – rather than planning for a future where they don’t work. Some aren’t planning to stop working at all, and they might be onto something.
“Your biggest asset is your skill set. The only thing that should prohibit you from working is if your health doesn’t allow it.”
Retirement as we know it is changing. So, what does life after work look like? It’s longer, more active and an opportunity to change focus or pursue second careers. If you view this time as a new lease on life, rather than a time to slow down, you ensure a more fulfilling future with the guarantee that your savings will grow with you.