Finance 101: Retirement part I – Are you ready?

Our retirement is the most significant investment we will make. Yet statistics show that South Africa has one of the lowest saving rates in the world which means that most of us do not plan properly for our retirement. Over the next few months we will look at retirement savings and examine such topics as how to plan, how much will you need, what products are out there, and whether we should use consultants to assist us with our retirement funding. Why do we need a retirement plan? Over the last few decades, retirement funding has changed drastically from our employer providing for our retirement to you and I having to plan our own retirement. In addition, life expectancy has increased which places more urgency on the need to provide sufficient income for probably at least two decades. Just think of it like this – you are effectively going on a twenty years or more holiday and you need to ensure you will have enough income for this period. The earlier we plan the better The power of compounding is well known and often written about. Thus, the earlier we begin to provide for our retirement, the better off we will be – for example, a 15% return on savings and investment means our savings double every five years. If we do this for 30 years versus 15 years, our savings will be eight times greater.  Clearly, there is always the risk of a financial meltdown just as we are about to retire but this is something outside of our control. We have to save – there is no other way.  If you are serious about planning for your retirement, then you have to make a commitment to save. The starting point – “Where are we now?” A personal balance sheet will tell you what you are worth today. An example would be grid June All of the above would be done at market values i.e. “what can I get for these assets today?” So what does this tell us? Our net worth is positive which is good. We can presume that our house and motor vehicle will be able to buy us a retirement house and run-around motor car. The important point is the worth of the business, shares and the beginnings of a savings account. Next we should do a similar exercise on our earnings and expenses. How much of this goes into retirement?  And how much can we put into additional retirement funding? Next month we will look at “How much do we need to retire?” © DotNews, 2005-2013. This article is a general information sheet and should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein.  Always contact your financial adviser for specific and detailed advice.

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