Have you ever asked yourself, “Will you live as well as your parents did when you retire?”
That's a question thousands of South Africans ask themselves everyday when they reach retirement. The sad truth is, the answer is probably always, “No, I won't”
And, it's no surprise...
You know the statistics that say, only a quarter of South Africans will retire comfortably. The rest will end up running out of money before they die.
But what happens if you are prepared for your retirement. You know that you have enough saved up to get you through another lifetime. Then, when the big day arrives, you head off to get your cash and there's less than you thought.
Even if you think you are prepared, there are two major pitfalls that most retirees never see coming.
Today, I'm going to tell you what they are and what you need to overcome them so that you won't be caught off guard.
How a higher cost of living in retirement can deplete your retirement nest egg
Peter Doyle, president of the Actuarial Society of South Africa recently reported that South Africa’s household savings rate (expressed as a percentage of GDP) was a dismal 1.5% in 2015. The majority of consumers clearly do not have a long-term savings strategy in place.
Doyle says that human nature is to blame for the low rate of savings in the country. He believes that South Africans are too focused on living in the present, trying desperately to live month to month, that most households fail to have an emergency lump sum in place and even worse, retirement is not even a consideration for most households.
The scary truth is that as the years pass, day-to-day expenses like eating and medical care could cost you a small fortune five, ten and 15 years from now.
Just look at what’s happening to food and medical in South Africa this year alone...
Retirement Pitfall 1: Food, medical and energy costs increasing substantially in 2016 and beyond
Absa bank expects inflation to increase to 7.3% in 2016. This exceeds governments 6% inflation limit. This is having a severe impact on you, the consumer. In the next few months, food prices could increase by 10%. Economists predict that by 2017, your monthly grocery shopping will cost you 25% more than it does today.
And this is only the beginning...
You see, food costs are not the only threat to your pocket in retirement. As you get older, the need for specialised medical care increases. Even though the cost of medication is strictly regulated in South Africa, the weak rand is battering the pharmaceutical industry. In the past, the Department of Health only allowed one increase for medication per year. Thanks to the weakening rand, the department is seriously considering the price of medication again this year.
Finally, the cost of fuel and electricity are climbing steadily. We’ve already seen two petrol price increases this year. Electricity is also going up. Eskom already asked the National Energy Regulator of South Africa (NERSA) to hike tariffs by 16.6%
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Retirement pitfall 2: New tax legislations could leave retirees on the back foot
The South African National Treasury recently introduced a law that give all taxpayers who contribute to a pension fund, provident fund or retirement annuity a tax deduction of 27.5% of their income (limited to R350,000). The treasury believes that this will encourage pension fund members to save more using their retirement funds.
In the next issue of the South African Investor
, Guy Algeo goes into great depths explaining this new tax legislation. He says, “The impact of the increase in life expectancy on those nearing retirement is concerning. That’s why I’m going to explain everything you need to know about the changing retirement landscape in South Africa and what you can do to ensure you have the retirement you deserve.”
You can’t get away from rising costs
Here are four solutions to help you beat the retirement pitfalls
1. Find out exactly how much you need to for retirement - Calculate your ‘Magic number' in ten minutes or less!
Calculate what income you need or simply live the retirement lifestyle you want using Francois Joubert’s Magic Calculator
. It will take you less than ten minutes. Please do it now. In terms of your future wealth and happiness, it may be the most fruitful ten minutes you ever spend
2. Stock up on income generating investments
If you’re looking for a way to boost your retirement investments, start investing in great dividend paying stocks. You can reinvest your dividends until you need the income from your stocks or decide to sell some of your holdings.
3. Increase the level of portfolio protection with alternative investments
If you want to add alternative investments to your retirement portfolio, hold about 5% of your investment capital in collectibles. If the financial markets move against you, you’ll find more investors willing to buy your collectable investments. This happens because they are looking for ways to protect their wealth. You won’t have to struggle if you need a sudden cash injection during your retirement years.
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4. Increase the value of your retirement fund
This is a vital step to protecting your wealth - Nobody’s paying much attention to the erosion effects on your retirement fund at the moment, but at The South African Investor
we keep our eyes on anything that might erode your future income. The pillar one advisors have gone to great lengths to help readers create a legacy of private wealth by uncovering safe investments with much higher returns that you’re probably getting now.
If you’re looking for more ways to grow and protect your retirement nest egg, I suggest you take a look at The South African Investor
– It’s all about preparing and managing your retirement nest-egg under the new Regulation 28 laws.
Joshua Benton, editor of The South African Investor
says, “Now more than ever investors should be looking to safeguard their investment capital. Alternative investment like gold and silver may not be enough. You’d also have to look to the JSE to find shares rand hedge shares that pay dividends and that can withstand any long-term economic conditions.”
At the next South African Investor
member meeting, Joshua Benton, Chris hart and the team of investment experts linked to the South African Investor
will share their outlook on the rand and tell you what shares will be best to protect your portfolio.
To get your hands on all the best asset protection strategies you must be a member of The South African Investor
Once you sign up, the board of governors will send you a private invitation
to the next member’s only event happening in Johannesburg on 24 May 2015.
Let’s build your wealth together,
The South African Investor