Why it is important to start planning for your retirement Now!
There are many types of investment which build up capital or provide a monthly income when you retire.
Retirement funds
Some employers offer a retirement fund
. This may be a pension fund or a provident fund
. Find out more about it and what your
responsibilities are. When you retire, your retirement fund benefits will be paid out to you. By law, at retirement only one third
of a pension fund
may be taken in cash
(after tax) while the other two thirds
must be invested
to give you a regular income. You may want to invest your one-third lump-sum payout
as well! If you belong to a provident fund
, you may receive either a monthly pension
or a lump sum
, which you should use to buy a monthly pension.
Even if you have a retirement fund which guarantees an income for the rest of your life, it is unlikely that you will have enough
money to live on comfortably
when you retire.
How do you make sure your retirement fund beats inflation and lasts as long as you do?
You will receive a benefit statement
once a year, which will give you details of the current position of your fund. Review your situation regularly and make adjustments to your investments when necessary. It is important to invest extra money while you are still working.
Some retirement funds allow for top-up contributions. If yours doesn't, you should make additional investments (usually a retirement annuity or an endowment policy) as soon as you can.
The important thing is to invest as much money as you can every month to make sure your retirement fund will be enough to live on safely and securely when you are old. Avoid cashing in a retirement fund if you change your job - but if you do, transfer the money to a preservation fund
.
Lump sum investments
If you have a lump sum to invest, decide what your objective is and choose the appropriate investment, depending on when you will need the money. Each type of investment has its own risks, rewards, time-frames and advantages, depending on your reasons for investing.
Example 1:
If you become entitled to a lump-sum payment
from your pension or provident fund when your resign from a company, you should transfer it to a preservation fund
. This would not only save you from being taxed on the lump sum now, but also ensure that it is there for you for your retirement.
Example 2:
If you wanted to put away a medium-sized lump sum
for five years or more, a unit trust portfolio may be a better option.
Example 3:
If you are interested in investing
R50 000 or more for at least five years at a time, you should consider a single-premium endowment policy.