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Secure your future this retirement season

Achieving a comfortable retirement requires careful consideration, financial planning, and informed decision-making. And there’s no better time to start preparing than February, also known as retirement season.  But where do you start?

The first step is to evaluate your current financial situation – taking your spouse or partner and any dependants into consideration. Take a comprehensive look at your savings, investments, and assets and consider consulting a financial adviser. An adviser will help you evaluate your financial health and take you through the types of financial products you can choose from to give you a sustainable income once you retire, one that will support your desired lifestyle.

As part of this process, you need to establish a budget for your retirement years, separating your potential expenses into needs and wants, or in other words your essential expenses and discretionary expenses. These may vary from your current needs and wants, which will affect your budget. Essentials typically include housing, healthcare, food, transportation and utilities, while discretionary expenses are generally more flexible and may include holidays, entertainment, socialising, hobbies and other leisure activities. Creating a budget is a good way to get an idea of how much income you will need; and don’t forget to factor in inflation over time.

Most people tend to underestimate their life expectancy. Retirement can span several decades, so it is crucial to plan for long-term financial stability.

Why you need your own savings

The South African Old Age Grant is currently at R2 080 per month for 60+ aged individuals and for those over 75 years old, it is R2 100 per month, which is not nearly enough for the average South African retiree.  While the Grant may be adjusted marginally in this year’s Budget Speech, it is still highly unlikely to be sufficient.

The Old Age Grant figures show why it’s important to have your own savings – either through your employer’s pension or provident fund or through a private retirement annuity that you contribute to during your working years. When you retire from any of these funds, you are legally required to purchase either a living annuity or a life annuity with at least two thirds of the capital you accumulated in your working years. The greater the sum you have accumulated, the higher the post-retirement income you will be able to enjoy.  

Choosing the right post-retirement product will also make a difference to your outcome in retirement. A living annuity is an option that allows you to choose the annual income amount within certain limits, usually as a percentage of the total investment value. There is risk here as the income will fluctuate based on investment market performance.  A life annuity is another option. It provides a guaranteed stream of income for your lifetime, no matter what; and a blended annuity is a combination of both.  A blended annuity provides some guaranteed income and some flexible income, or the ‘best of both worlds.’

Visualise your future

It’s a good exercise to think about what you want to achieve in retirement, and how you can make your money work for you in the most sustainable way so that you can enjoy peace of mind. Where might you like to live, which hobbies would you like to pursue, or which meaningful experiences would you like to have? These are all questions to consider.

Understand what is most important to you - certainty or flexibility? The right answer depends on your preferences. Thinking about these two apparent opposites will help you decide which product option is best suited to your future and the income needed to support your wants and needs.

A guaranteed income from a life annuity may be the best option for you, or you may prefer to take more investment risk through a living annuity. A financial adviser will be able to help you choose the right annuity product that gives you the best possible retirement income based on your individual circumstances.

Article by Bonolo Mosoane, Just SA Business Development Manager

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