How to retire in comfort

THE Old Mutual Retirement Survey published recently revealed that retirees will have less than 26 percent of their final salary as a pension when they retire.

This is even more disturbing than the statistics that only 6percent of the South African workforce will retire comfortably. Contribution to a retirement fund or private pension plan does not guarantee sufficient funds on which to retire. It is imperative that calculations be done on the numbers now to establish where you are today and what your journey will be .

So you should start saving for retirement on the first day that you start working. If you say this to a young person, however, they will most likely laugh at you. After all, working life can be anything over 40 years and when you're 20 years old, this is two lifetimes away.

The real problem is when people don't know how much to save for retirement. I've written about the effects of inflation, but the numbers are more shocking when you consider someone who earns R30000 a month today at age 30, and at 7 percent inflation, will need to earn R228000 at age 60.

Compare this to my first pay cheque of R90 in the 60s. My monthly rent was R45, equal to 50percent of my salary. Now you should not spend more than 25 to 30 percent of your pay on rent or bond payments.

The main reasons why investors don't have sufficient funds at retirement are lack of preservation of retirement savings when changing jobs and inadequate contributions to a retirement fund. Preservation when changing your job is imperative because if you opt to take the funds and start again, it will take years of additional contributions to make up for the money you were paid out and worse , you will lose out on compound interest.

Regarding low contributions to retirement funds, if you belong a company fund and you and your boss contribute equally, remember that a portion of that will go towards the cost of group life, disability and administration. Furthermore, pensionable salary is often lower than actual earnings because contributions will not be paid on commissions and, or bonuses received.

This is where retirement annuities play a major role because you can contribute up to 15percent of non-funded retirement earnings, which are tax-deductible.

Another reason retirees have insufficient funds is because they are too conservative. For any period in excess of seven years, you should be fully invested in markets locally and abroad.

l The writer is financial adviser of Bryan Hirsch Colley and Associates. E-mail or telephone 011-880-4888.