Start planning now for your retirement

Newspaper headlines scream that consumer spending has been at a record high in retail, cars, exotic holidays and new homes.

Newspaper headlines scream that consumer spending has been at a record high in retail, cars, exotic holidays and new homes.

Are South Africans using the enormous tax savings of the past few years to increase their retirement savings or has the money been spent?

Debt is increasing as interest rates have risen, making it costlier for consumers.

And there have been major changes in the structure of most retirement funds. The old concept of your fund defining your retirement benefit has been replaced by funds that define how much will be invested by the employer and the employee. The new funds put all the risks on you. Inflation will diminish the value of your pension because the retirement funds have made no provision for increases.

This emphasises the need for you to calculate your position at retirement.

Here is what I suggest you do with your financial planner:

l Create two budgets, one for your current yearly expenditure and a second for your retirement. Almost everyone assumes that you will be able to reduce costs during retirement. But even with debt out of the way, you will need to consider the costs of medical aid, the life insurance your pension fund once paid and any other perks you received from your employer that you must now pay.

l Take all your investments and calculate their current values. In the case of endowment policies use surrender values and for retirement annuities use the current fund value.

l Escalate the values by using a three percent greater return than inflation. I suggest inflation at six percent and investment returns at nine percent

Include in the calculations all future savings you have not yet made.

Deduct any tax to be paid from the returns on investments that produce interest or rental income.

l Total the figures and this will give you the capital sum available at retirement. Take your estimated retirement budget and escalate it by six percent per year from now until retirement.

l Calculate what nine percent of your capital will give you on a yearly basis and compare this to your retirement budget figure.

Income may be higher at retirement. With inflation you will be able to calculate at what stage your income will be less than your yearly needs.

Those aged 50 have only 180 pay days left until they reach 65. Time is of the essence, so do not delay in assessing your position.

lBryan Hirsch is chief executive of Pioneer Financial Planning. Visit or e-mail for info.