Five steps to a comfortable retirement

According to the South African Treasury, only six out of every 100 South Africans will be able to retire comfortably. And a recent BusinessTech poll shows more than a third of middle-class South Africans aren’t putting any money at all away for their retirement.

Retirement planning
Retirement planner
Dieter Schmikl, Financial Advisor, NMG Benefits

As a result, growing numbers of consumers are turning to direct investments on online trading platforms to try to boost their retirement savings – but it’s a high-risk strategy that ignores the fundamentals of proper retirement planning, says Dieter Schmikl, a financial advisor at employee benefits firm, NMG Benefits.

“As more consumers get educated and digital, we hear many stories of people making quick money trading forex or shares online. But that’s not how you plan for retirement. The fact is that if something sounds too good to be true, it probably is,” says Schmikl.

So how do you get yourself on the road to good financial health and a comfortable retirement? It’s a smart, measured five-step process that looks after your priorities.

Step 1: Spend less than you earn

“Find a lifestyle that gives you the capacity to breathe financially, and to enjoy the quality of life that you’re looking for, with some money left over every month to save or put away for your retirement,” says Schmikl.

Step 2: Take care of risk

If you can’t earn an income because of injury or illness, who’s going to pay your bills and monthly obligations? Before you save for anything else, make sure you have income protection in place. It’s a critical part of any balanced financial plan, with a long-term view to a secure retirement.

Step 3: Make provision for retirement

The biggest reasons that most South Africans can’t retire comfortably is that they start putting away money too late for their retirement, or they don’t put the right amounts away. “Retirement funding is a numbers game. It’s critical to sit down with an advisor and work out how much money you’ll need in your retirement, how much you’ve got, and what the difference is,” says Schmikl.

The rule of thumb is that of you start putting away 15% of your earnings at the age of 28, you’ll be able to retire comfortably at 65, with 75% of your earnings. The later you start, the higher this percentage becomes.

If you don’t have enough retirement savings, crunch the numbers. For every million rand you have in retirement savings, you’ll get around R4 000 a month at sustainable draw-down levels, increasing with inflation. “Ask yourself how much you will you draw down per month to support your lifestyle. Can you put away more every month? Or do you need to carry on working for a few extra years? If your house and car are paid off, you probably need less than you think,” says Schmikl.

Step 4: Look at short-term investments

“When, and only when, you have taken care of your risk and your retirement, you’ll be able to start looking at short-term investments, like unit trusts. But be focused on which investments you want to invest in and try to diversify your portfolio to smooth out the bumps along the road,” explains Schmikl.

Step 5: If you still have money left, go high risk

We’re bombarded daily with advertisements that promise exponential returns through trading forex, cryptocurrency or equities. If you have some spare cash, feel free to dabble. But where many of these platforms offer high rewards, but they generally come with high risks too, warns Schmikl. “You’re not going to turn R10 000 into millions in the space of three years. That’s not how it works.”

“Ultimately, retirement is all about diversification, spreading your risk and beating inflation on an annual basis. If you get that right, you’ll be able to retire comfortably at the age you choose.”