By: Liesl Kleinsmith
Does Being a member of a retirement fund guarantee a comfortable retirement?
Short answer: probably not…especially if you keep dipping into your retirement savings.
Years ago, the concept of "retirement planning" was hardly a consideration for most working individuals. For our parents’ generation, a retirement fund deduction was merely a standard line item on the payslip, often going to a Provident or Pension fund with little follow-up or proactive management.
In fact, it wasn’t uncommon for individuals to be unaware of their retirement fund name or, investment growth. This lack of financial literacy and transparency contributed to the significant volume of unclaimed benefits that we now see in South Africa.
Fortunately, with modern media and technology, retirement fund communication and education have evolved substantially. However, just belonging to a retirement fund is not enough to ensure a secure financial future.
Here are several key strategies that can help you stay on course and achieve your retirement goals.
1. Connect with a financial adviser
Many of us may delay talking about finances, yet we often think about them, especially amid economic uncertainties. Avoiding financial discussions doesn’t alleviate concerns; it can have serious repercussions. Qualified financial advisers help you make well-informed decisions that fit your unique circumstances.
Some questions to consider asking your adviser include:
· Will my retirement savings last my entire lifetime?
· Will I have enough to achieve my goals?
· Can I afford to assist my aging parents financially?
· Will I be able to pay my children’s education costs?
· Is my legacy planning in line with my goals?
Financial advisers, provide financial advice to help individuals manage their daily expenses, make informed financial decisions, and prepare for life’s pivotal moments -whether they are aspirational (like purchasing a home), inevitable (like retirement), or challenging (such as unexpected illness).
2. Keep your retirement savings intact when changing jobs
Leaving a job used to be a chance to cash out your retirement savings to pay off debt or cover expenses. However, with the two-pot system now in place, accessing retirement savings when leaving a job is no longer an option.
In this system, your retirement savings are divided into two parts: a savings pot and a retirement pot. The savings pot, which holds one-third of your contributions, can be accessed before retirement under specific conditions. The retirement pot, holding the remaining two-thirds, is preserved until you retire.
By staying disciplined and focusing on long-term growth, you can build a more secure financial future.
3. Save as much as possible for as long as possible
Compound interest is an investor’s best friend. Contributions made in the early years of your working life have the most significant impact on retirement savings. This effect is due to compound interest, which allows your funds to grow exponentially over time. Indeed, contributions made during the first decade of saving could contribute as much as half of the total retirement savings you’ll need.
With the implementation of the two-pot system members of funds are now allowed to take their savings pots once every tax year. Nonetheless, it’s crucial to let compound interest work its magic by preserving as much as possible in the fund for as long as possible.
4. Maximise all available retirement fund benefits
Some employees may overlook valuable benefits that their employer provides as part of their retirement plan. Over the past few years, many have struggled to maintain financial, physical, and mental well-being due to global uncertainty and economic challenges.
Employee benefits programs often extend beyond savings. Employees may have access to affinity rewards, medical aid, life insurance, critical illness, and disability cover, as well as mental health counselling. These benefits are designed to support employees’ personal and financial well-being.
5. Regularly review your financial status
Staying informed about your retirement savings is essential for staying on course. Fund members need to receive information on their retirement funds at least once a year but these days it is possible to keep up to date with your information more often. Most administrators provide online information these days although certain funds might only provide updated values monthly instead of daily. It is not necessary to look at your values daily as you are saving for the long term but it is important to periodically check that you are still on track to meet your long-term retirement goals and amend your contribution rate, beneficiaries, or portfolio if necessary.
6. Keep calm and stay focused on long-term goals
Final thoughts: become an engaged retirement fund member
Your retirement outcome depends on the actions you take now and on an ongoing basis. Whether you are decades or only a few years away from retirement, there’s always time to make a positive impact on your financial future.
Start by assessing your economic status, connecting with a trusted adviser, and making the most of your retirement fund benefits. Becoming more involved in your retirement savings will help you move beyond simply being a fund member to becoming fully engaged in your financial future. With the right planning, your retirement fund could help you to achieve your retirement goals.
* Kleinsmith is a technical marketing specialist at Alexforbes.
PERSONAL FINANCE