Too many people believe that their pension fund is sufficient to be financially secure into the future. This, however, is an erroneous assumption. Given longevity due to medical advances, inflation and the volatility of markets, your pension planning is no longer something you can ignore with the hope that it can be your security blanket for retirement.
When it comes to securing your financial future, we are told to save. But it is less about saving and more about investing for wealth. This is why expert advice and sound financial planning are essential. A good financial planner will consider a number of issues when it comes to planning your retirement to ensure you are financially secure in your twilight years.
Value of your pension fund
The Benchmark 2020 survey that surveyed 100 funds, 100 employers and 100 employee benefit consultants, found that most pension fund members are contributing on average around 16% of their salary to a pension fund. After fees and administration costs, 13% of their premium goes towards their savings. The survey found that if the member contributes every month, without withdrawing from the fund, for 40 years (say 25 years to 65 years of age), their pension will pay out an amount equivalent to 56% of their final salary. The survey said that a person wanting to earn 75% of their salary, would need to save for a further five years. If, however, a person starts saving later in life, the value of their pension fund will be much lower. If they saved for 30 years, their pension will pay out 36% of their salary, 20 years of saving will yield 21% and 10 years of saving only 9%.
Cost of living and inflation
When it comes to living in Africa, there are many essential expenses that cannot be shaved from your monthly bill. Tax, medical aid, house and car insurance, complex levies, frail care, are all expenses that need to be included when planning for the future. In addition, all off these costs are subject to inflationary increases, and often the price increments can exceed inflation. This means that if your investments are not growing at more than the rate of inflation, you will not have enough in your portfolio to keep up with essential costs.
Emergencies and big-ticket items
Being retired does not mean you are immune to financial emergencies or the need to purchase big ticket items. When it comes to your financial plan you need to factor in some fat for extraordinary expenses. Buying a new car, having to pay in extra in case of a medical emergency, or simply painting your home or repaving your driveway, are all expenses that need to be factored into a well-thought-out retirement plan.
Maintaining a standard of living
Retirement is a time when people should be able to enjoy the life they have been planning for. This includes indulging in hobbies, possibly moving, spending time and money with family and travelling. A good retirement plan needs to factor these expenses in. The last thing any retiree wants is for their standard of living to decline because they cannot afford that Sunday roast, or go on their annual summer holiday. But these expenses are luxuries and often the first to be cut on a tight budget.
Very old age
It is a fact that people today are living longer than ever. If you started saving 40 years ago, very old age may not have been a consideration in your financial planning. Today it is not inconceivable that you could live well into your 90s. For that reason, you need to ensure that your savings can cover you for 30 or so years after retirement.
In a world beset by the COVID-19 pandemic and geo-political uncertainty, global markets are increasingly volatile. This means that your defined contribution pension fund will increase and decrease in value depending on the state of the global economy. If you do not have a well-diversified portfolio, that protects against volatility, you are at risk that your pension fund will not maintain its value into the future.
Get the best advice
Planning for your retirement is complex and requires expert advice. A financial services firm, like Carrick Wealth, has a team of experts that can help you build wealth. A well-diversified portfolio that includes equities, property, bonds, and both local and offshore investments is key to supplement your pension fund. And a good advisor can craft this plan around you and your family’s personal needs. Once you have your plan in place, they will help you to review your plan regularly to make sure you are on track to reach your retirement goals.