Saving for retirement is often undermined, especially when an income earner is faced with various financial pressures relating to mortgage bonds, vehicle loans, perpetually soaring food prices, among other things.
What makes matters worse is when the cost of goods and services rises faster than your annual income.
However, a financial specialist points out that individuals need to reflect on their personal financial planning and start focusing on retirement as early as possible.
“In fact, starting to save for retirement as soon as possible, even in your 20s, is one of the smartest financial moves you can make.
“The earlier you start, the more time your investments have to grow, especially with the power of compound interest,” says Ester Ochse, the product head of integrated advice at FNB.
“The reality is that retirement might seem far away but the sooner you start saving for it, the more your money can grow and compound.
“Even small, regular contributions can make a huge difference over time.”
Ochse advises that consumers could start a tax-free savings account (TFSA).
“One of the most powerful tools at your disposal is the TFSA.”
She said the account allows you to contribute up to R36 000 annually, with a lifetime limit of R500 000.
“The best part is that the returns on your investment are completely tax-free, allowing you to keep every cent of your growth. This is a perfect way to save for retirement in a tax-efficient manner.”
“For example, if you contribute R3 000 per month to a TFSA with unit trust exposure that aims to return CPI +5% 9.5% return, you could see significant growth over time.
“Compound interest allows those early contributions to grow exponentially, creating a powerful nest egg for your future.
For example, contributing R3 000 per month in a fund that potentially returns 9.5%, the potential returns could look like this:
R 1 154 901.74 in 15 years;
R 2 975 090.86 in 25 years; and
R 12 300 790.74 in 40 years.
Take a moment to review how much you’ve contributed to your TFSA. If you haven’t maxed out your R36 000 annual limit, now’s the time to top it up and let your money work for you.
She said consumers should know their retirement products.
“Pension funds, provident funds, and retirement annuities are essential vehicles for retirement savings, offering both tax deductions and long-term growth.
“You can contribute up to 27.5% of your taxable income to these products, with a cap of R350 000 per year. If you contribute in excess of the allowed limits, the benefit will roll over to the next year.
“Understanding your retirement products and how they work is vital. Don’t just contribute for the sake of it – use these saving and investment vehicles to their fullest potential.
“The key is consistency and maximising your contributions, especially as we head into the new budget year.”
