Tips on How to Start Saving For Retirement
I know some of you might be kicking yourselves for not starting to invest sooner, but rest assured you're definitely not alone. In fact, a research by the Annual Sanlam survey of SA retirement fund industry shows that 60% of pensioners have insufficient savings levels, leading to 64% of these cutting back on expenses and 31% having to work to supplement their income.
The fact is, starting to save for your retirement in your late 20's or early 30's is not the best decision. To start earlier is always the best option, but it's better than starting later!
Now let's get to why I decided to write about retirement. My aim is to help change the statistics I shared earlier, to the point that in 30-40 years’ time we are sharing lower numbers than the current ones. Which starts with you making a couple of changes today.
But for us to make those changes, we first need to understand how we got here? For most, it was a combination of life events like:
You were not sure what you wanted to study after high school or might not have had the funds to study father, and that lead to you putting varsity off.
You couldn't find employment after University (because of the high unemployment rate in South Africa) which therefore lead to you settling for low income job that was not even related to what you studied for in varsity.
You had unexpected life events that set you back and prevented you from earning more.
You had positive life events, such as a child, that prevented savings.
Honestly, the list of reasons why the average 30 year old is not investing are endless, but the story is the same: you simply never had the means to save or invest until now. Maybe even now you still feel you might not have the means. To add to this, other researches say that It's a challenging to start saving in your 30's as that's the time in your life where it's typically filled with major (and often expensive) life events such as a marriage or children.
So, how do you overcome the above challenges?
The solution is financial balance, meaning to save for the present and future at the same time. But it requires a little more thought, effort and planning, which starts with you setting realistic goals.
So then, the real question becomes - how do you set realistic goals, and how can you be honest with yourself in achieving them? The answer being financially organized.
The only way you're going to be successful in saving for your future is if you keep accurate financial records that will, help you understand where your money is going. If you don't already have a good system in place, look at using some of the budget techniques I shared on my last article.
If you don't feel comfortable doing it yourself, It’s also wise to meet with a financial planner to discuss ways of creating a plan. But please, ensure you do not pay unreasonable fees to have a financial planner help you. I recommend talking to a financial planner who can help you plan around life events. This is to ensure that the same financial plan you create works during the different period of the life event. For example, if you create a financial plan as a newlywed, the same plan should work for you until you have children.
So how do you go about saving for your retirement?
I recently had a conversation with an old friend from Varsity who currently works as a client relationship manager at Allan Gray about how to start saving for my retirement. He told me to sign up for an 11 –part email series offered by Allan Gray on saving for investment. After signing up, this are the lessons I know will be helpful to you:
Assess your spending habits.
Again, do a budget. You may find out you are spending way too much on unnecessary things. Jeanette Marais wrote “Consider this: it costs more to have a monthly DSTV subscription than most minimum monthly contributions towards a retirement annuity or a unit trust investment - many financial services companies, including Allan Gray, offer investment minimums of just R500 per month”.
Calculate how much you need to save for your retirement each month.
According to the research done by Allan Gray to save enough where you will eventually withdraw an income of 75% of your final salary (widely believed to be the amount you need to maintain your lifestyle), you need to have saved twice your annual salary after working for 10 years, five times your annual salary after working for 20 years and 17 times your annual salary after working for 40 years. Therefore consider how long you still have to work until you retire. The lesser the years the more you need to save per month or year.
Do some homework about investment managers.
It’s advisable to take the time to research investment managers and what they offer. This is to ensure you save your money with a legit and best investment managers. “Successful investing is all about the right partnerships. Objectives need to align, value systems should resonate and trust plays a key role. These criteria should guide your decision when selecting an investment manager”
But don't kick yourself because you didn't start 10 years earlier, the second best time is today. An ancient proverb says, "The best time to plant a tree was 20 years ago. The second best time is today."