Saving for retirement……do you have enough?

You can’t look anywhere in the press these days without seeing the words ‘Retirement Savings’ coming into focus.

Recently the government has being trying to implement Retirement Reform Policies in an attempt to encourage everyone to save more. Their motive behind this is, the more individuals save towards their own retirement, the less pressure ultimately on government to fit the bill to fund pensioners. This is all very well, but there is resistance to the reforms from Unions, especially any attempts to limit members’ access to funds before retirement age. Currently Pension and

Provident funds allow members leaving employment (through resignation, dismissal or retrenchment), before age 55, the option to withdraw the full amount of their retirement savings, subject to a set Tax Sliding Scale. Retirement annuities do not allow access to funds unless you formally emigrate or become physically or mentally incapacitated. The intention of the Retirement Reforms is to simplify and align all the Retirement Investment Product rules and encourage increased savings and importantly conservation of these investments for retirement funding at old age.

The sticking point for the Unions seems to be the proposals to disallow or limit access to retirement savings before retirement. Mutual ground will need to be found that provides for a balance between the preservation of retirement savings and the flexibility for individuals with valid reasons to access funds before reaching retirement.

The Accumulation, Preservation and Protection of Retirement Savings is what we ultimately strive to do as Financial Planners in planning for our clients comfortable retirement! We need to grow contributions, avoid large capital loses, and ensure that the best and most cost and tax effective products are utilised.

The duration of the annuitant’s life.

While this option provides certainty, the actual income amount is often quite low and unless guarantees are put in place (that can further lower the income amount) when the annuitant dies the Capital portion is retained by the Life Company.

2: A “Living Annuity” or “Linked Life Annuity”: This option allows the retiree full control of their accumulated Capital. And importantly should the retiree pass away the remaining Capital amount can be left to designated beneficiaries. The risk of this option is that the retiree must, according to current legislation, withdraw an annual annuity of between 2.5% and 17.5% from the invested capital. A draw down higher than the investment growth will erode capital which in turn reduces the annuity income and over time can drastically “decumulate” the hard earned retirement capital.
The question that exists is whether people can actually save enough throughout their working lives to be able to sustain the lifestyle they have come to know into their retirement years.
Our colleague Eugene alluded to this in his newsletter 2 months ago titled “your current self defrauding your future self.”
The problem is that people are not saving enough towards their retirement. How it usually works is that we save towards a set retirement age, that being 55, 60 or 65. Once we reach that age, we then have to annuitise the capital lump sum.

See an example at the end of the newsletter.

You have a choice at this stage as to what vehicle you would like to use. Your first choice is:

1: A “Life Annuity”. A Life Company will guarantee an income is paid for The capital “accumulated” for Retirement is often, at retirement, a finite amount with no additional amounts expected to replenish it. It is vitally important that the expectations of the retiree are realistic with the optimal annual drawdown being 6% or lower and that the capital is strategically invested into actively managed appropriate asset classes, professionally selected to minimise the destructive effects of “decumulation” on the precious capital.

At Harbour Wealth we take Retirement very seriously. We want all our clients to be in a position to retire comfortably and hence treat “Accumulation” (the investment period up to retirement) as fastidiously as “decumulation” the retirement phase where Capital is utilised to provide income.

It is never too late to start saving.

Example: If you require R50 000 income per month in today’s terms, the lump sum you will need at retirement is as follows:


Years Rand/Amount
Retiring Today R10 000 000.00
Retiring in 5 years R13 382 255.78
Retiring in 10 years R17 908 476.97
Retiring in 15 years R23 965 581.93
Retiring in 20 years R32 071 354.72
Retiring in 25 years R42 918 707.20
Retiring in 30 years R57,434911.73


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