How to Save for Retirement in South Africa

A savings culture should start long before the retirement age. You should start saving for your retirement using your first salary. Retirement saving is a long term goal that cannot be achieved from the salary of the last five years before retirement.

Parents should teach their children about saving culture. In case their children have birthdays or any other special occasion, they should teach them how to save for it.

Retired South Africans in Arniston Fishing Village spending their time knitting.

Retirement Savings

  • Only 5 percent of South Africans retire with enough savings to sustain them comfortably.
  • For most South Africans, saving for retirement is a forced saving since it is compulsory. Their contributions are deducted from their income before tax.
  • To retire comfortably, one should save 15 to 20 percent of their income between the age of 20 and 60 years

How to Save For Retirement

Tip 1: Set a Retirement Saving Goal

To save for retirement, you need to look at where you are today and where you would want to be when you retire. Then decide how much you want to be saving for your retirement. If you have a wife, it is important to involve her to hear her wishes for retirement. Remember that your actions will determine how your life will be after retirement.

Tip 2: Set Aside 15% of Your Income to a Retirement Account

First, make sure that you have paid all your debts. Once you are debt-free, you can open an emergency bank account to cater for your emergencies. Then open a Retirement Savings Account. Make sure that 15% of your income goes into the account.

In case your employer is offering Retirement Fund Contribution, you can take advantage and look for a good match for you. In case your employer is offering an excellent mutual fund option, take advantage an invest 15% in the fund.

Tip 3: Use Other Investment Options Apart From Retirement Fund Contribution

Since you want to maximize your retirement benefits, you must make use of other investment options. Let the 15% contribution be your minimum so that you can invest more than that.

  • Open a taxable investment account. The account has an advantage since you cannot withdraw money from your Retirement Fund Contribution without a penalty. Whenever you withdraw funds from the account, you have to pay a tax for the amount withdrawn.
  • Invest in real estate. Rental properties play a crucial role when you wish to earn a passive income. However, to succeed, you need to follow specific guidelines such as having an emergency fund for your rentals. The other essential considerations that one should consider are to pay cash for your real estate investment. Avoid financing a rental property since it does not work well.
  • Make use of Health Savings Account (HSA). You can take advantage of HSA to save and invest. With HSA, you can take out money to pay for deductibles and medical expenses tax-free when you reach the age of 65.

Other Ways to Save

Apart from the ways mentioned above, there are other ways that you can increase your retirement savings.

1. Cut Down Your Expenses

Among the reasons why people do not save for their retirement is because of many financial obligations. Every family has financial needs to tackle. However, you can look at your family’s spending and pick out what to prioritize on. Consider the following.

  • Do not change your lifestyle when you get a pay raise. Many people tend to change their lifestyle once they get a pay increase. They want a nicer house and other gadgets. You can direct the pay raise to your retirement account and maintain your current lifestyle. Remember that the 15% retirement investment should also accommodate pay increases.
  • Stick to your budget. You need to have a budget to account for the things you wish to spend on when you receive your salary. A budget helps you account for every single coin that you spend. Make sure that you only spend what you have budgeted for.
  • Get free stuff. There are many ways you can get free or discounted stuff in South Africa. For example, getting free baby products would help you to cut on costs involved when raising a child.
South Africans save billions of rands by enrolling for loyalty programs with retails giants such as Pick n Pay.

2. Spend on Essentials Only

Look at what is essential and what is not. For instance, going out with your co-workers every day is not crucial. It is important to enjoy life, hence, determine what activities are most critical. Know what to prioritize on. Do not go overboard and eliminate social activities for the sake of saving for your retirement, but do it moderately.

3. Get Rid of Debts

The other reason why people do not save for their retirement is because of debts. Debt isn’t only about borrowing money that you do not have, but also withdrawing money from your savings. Before you can start saving, make sure that your first eliminate all your debts. Debt will always hold you back from achieving your financial goals.

To save for your retirement, make sure that you cut down on your expenses, pay your debts and spend on only that which is essential.

Vincent is a writer with an interest in finance, business, technology and health niche. He holds a Bachelors degree in Applied Statistics with computing. He is the founder of Nexin Startups; a business web portal. Read more about Vincent and see our complete editorial team at FiFi.