Saving for retirement is a lifelong process and over time certain factors might influence your ability to save. Everyone’s circumstances will be unique, however, there are a few life stages that most of us will go through. In this article we’ll have a look at these typical life stages and what factors you should consider during each of these stages.
A large portion of our lives is spent working to earn an income, with our end goal being to retire at a certain age and with a certain level of comfort. To do this, it is very important to set clear retirement goals that you can attain. And to that end, you should make time work for you as it will not stand still. As the saying goes: ‘time waits for no man’.
The beginning of your career
At this stage in your life, time is likely at your disposal; you are young, you don’t have too many obligations and can save as much as possible. You may also be able to take on more investment risk.
Let’s look at a quick example. Zanele and Lynn are both 25 and have just started their careers. Both earn R15 000 per month. Zanele decides to be disciplined in setting clear retirement goals and saves 15% of her salary, being R2 250 per month. Meanwhile, Lynn decides to only save R1 000 per month. If both keep on saving for 40 years (until age 65), increasing their contribution each year with 6% and we assume an investment growth of 10% over this period, the end results will look like this:
It is evident from this example that being disciplined and using time to your benefit by saving while you are still young can help you reap the rewards at retirement.
Marriage and family
When you enter this life stage, your savings focus might have to change. You may want to purchase a home or need to pay for your children’s education, which means your expenses would increase significantly. Ideally, you should try to not reduce the amount you save for retirement at this stage. However, should it be necessary, it is important to establish what the outcome of such a decision will be. Speak to a financial adviser to determine the impact and if you should rethink your retirement goals. Remember that even if you are married and share a household, you should still set your own retirement goals and have a plan on how you will attain these goals. Life is uncertain and you should always be the steward of your own future.
Seasoned in your career
Once your career has been well established, your monthly income has likely increased while your expenses have stabilised. At this point time is not necessarily on your side but you are in
a better position to reassess your retirement goals. Consider your current retirement savings and determine if you are still on course with your financial plan. Should it be evident that your
current savings and contribution will not be enough to reach your goal, now is an ideal time to increase your retirement contributions.
When you are nearing retirement – which these days can be at any age (and mainly after 55 if retiring from a formal retirement fund) as people are living and working longer, it is important to prepare for this period of your life. Again, you will need to assess your current savings, what your income needs will be and, ultimately, if you are going to be able to retire at the age you wanted to. Now is the time to also find out about the different options at retirement. In addition, your investment horizon is changing and it might be necessary to transition your retirement savings to a more conservative strategy. Consult with your financial adviser to understand the various investment products and strategies available to you.
This is the stage in life where you are rewarded for your commitment to saving. By opting for a more disciplined approach, you will be able to retire without debt and enjoy the joys of life. The question to ask yourself is: did you make time work for you? Throughout all these life stages it is vital to establish a trusted relationship with your financial planner, who can assist and guide you with the decisions you need to make. A financial planner can also keep you accountable, as disciplining yourself to save can be challenging.
Gerhardt Meyer, Strategic Technical Manager, PSG Distribution