When To Start Saving & Investing For Retirement?

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For many young people, the idea of saving for retirement seems like something that needs to be done only when one is much older, more settled, or has paid off debts. But then we hear the scary statistic highlighting that only 6% of South Africans can afford to retire financially independent. That is a genuinely worrying statistic and something that needs to be changed for the better over time.

Financial independence is not needing financial support from family, friends, or the government. The big question is when should a person start saving and investing for retirement? And the answer is simple, the sooner the better, even contributing a small amount to retirement savings now can be very beneficial in the long run.

The moral here is that the earlier a person starts saving for retirement, the more they can benefit from the effects of compound interest. This means that the interest earns interest, over a long period of time. 

When it comes to retirement, there are a few things that one needs to consider:

1. What are your retirement goals and how much do you need for those goals?

Someone that wants to regularly travel in retirement will need more in retirement than someone that wants to be a homebody.

2. Continue to budget in retirement

Critically look at your budget now and see how many of those expenses will carry on into retirement. For example, groceries will continue into retirement but traveling to work and back will not.

3. Make provision for increased medical cover and expenses in retirement

Getting older generally means more medical expenses, ensure that you work that into the budget. Medical inflation is notoriously higher compared to consumer price inflation; therefore, you need to take this into account.

4. Make sure that you invest in the right solution for the right time horizon

Solutions you invest in need to be appropriate for your needs. Some solutions protect you against the risk of outliving your pension and other solutions don’t give you protection against longevity risk but provide you with flexibility on the income that you select annually. Do your research and get advice from appropriately qualified and registered financial service providers. 

5. Preserve your retirement savings

When you change an employer and have a pension fund from the previous employer, preserve your retirement savings in one of the available vehicles like a preservation fund or the new employer’s pension fund. The reason why most people do not retire comfortably is that they do not preserve their pension when changing jobs. This will help towards the effect of compound interest and is a good practice in the long run.

The next step is freeing up cash to contribute to your retirement goals. Get back to the basics of checking your budget and see where you are spending your money. For more information, please visit FNB or download the retirement app.