While government provides taxpayers with excellent incentives to invest through approved retirement funds, the uptake remains critically low, and the overwhelming majority of South Africans remain severely underfunded for their retirement years. While many employed South Africans have the option to invest through their employer’s pension or provident funds, with unemployment being at an all-time high, this option has become available to fewer people.
However, to benefit fully from such structures, it is important to start early, consistently invest enough for your goals, invest appropriately, and avoid dipping into your retirement savings. Simply put, the best time to start saving is right now. As Ayanda is relatively young, her advisor builds a life expectancy assumption of age 100 into her financial plan. Given her 40-year time horizon, her advisor knows she can invest more aggressively and, as such, assumes that her investments will achieve returns of inflation plus 4.5% per year during the accumulation phase. At retirement, Ayanda will move her invested capital into an investment strategy that targets annual returns of inflation plus 4%, net of all fees.
The second option available is to save more although, with a fixed income and a limited time period in which to achieve your goals, this may not be financially possible.