Five essential actions to take before retirement

2 October 2017 by Gary Fisher

With statistics showing that only six percent of South Africans retire with enough money, pre-planning is essential. Here are five tips to consider on your retirement journey:

1) Know what your future income will be when you retire

This is the income in retirement that you will be able to earn from your combined funds and investments when you retire. The projected amount of pension at retirement should be around 75% of your final salary. Speak to your financial adviser who will be able to assist in calculating what your projected income will be in retirement.

2) Include all your retirement investments

Get the market value of your all your investments and the amount you contribute on a monthly basis (only include investments earmarked for retirement, otherwise the projection will be skewed) and include all of these variables into your retirement calculation. If your replacement ratio is below 75%, consider contributing extra into your fund. Recent changes in retirement legislation allow members of funds to contribute up to 27.5% of total earnings tax-free.

3) Understand what additional benefits you receive through your employers fund

These may include risk benefits such as death cover, funeral cover, personal health insurance, which includes disability and/or dread disease, and personal accident cover as well as additional spouses cover if you are married. Now compare this to your personal insurance cover and ascertain whether there are any gaps or if you are over-insured. Do these additional benefits have continuation options, if you leave your fund before or after retirement and wish to continue with the cover?

4) Update your Beneficiary nomination form

Beneficiary nomination forms for your employer retirement fund must be filled out to guide the payment of death benefits. If a form has not been completed or is outdated the paying out of your benefits will be delayed as the trustees would need to further investigate who the rightful dependants and nominees are.

5) Do you know how your retirement contributions are invested?

Understand how your hard earned contributions are invested and what options you have. Many funds have a lifestage model or trustee choice portfolio which defaults you to the appropriate investment portfolio based on your proximity to retirement, with no further input required from the member. Some funds also provide for member investment choice which allow you to choose the portfolio or range of portfolios that you would like to invest in. Understand your personal risk profile in relation to your proximity to retirement before merely ticking boxes, as the choices you make depends how your money grows over time.

About the author: Gary Fisher is a Financial Planning Consultant at Alexander Forbes