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Saving for retirement

Once you’re in your 40s many of your lifestyle habits and preferences are likely to have changed (at least since your 20s and 30s), but this could also mean you have more expensive taste or higher costs due to lifestyle inflation.

Retirement, however, is a little closer than it was in your earlier years, and your 40s are also meant to be your best earning years. With life expectancy considerably higher than it was for previous generations, ensuring you save up enough for a sustainable income in retirement becomes all the more crucial.

Life expectancies are on the rise: are you financially prepared to live well into your 90s?

Data from the US shows life expectancy at age 45 for reasonably healthy individuals from middle-income households is around 95. While the situation in every country will be different, advances in medical care makes it more likely that you will live longer.

At age 45 it is expected that you should have approximately four times your annual salary saved up. Most South Africans don’t even have that much at the point of retirement, so it’s essential to start seeing the bigger picture, before it’s too late to improve it.

All is not lost if you are behind, but it will take a serious commitment to catch up. Think about the retirement lifestyle you planned for when you were in your 20s and 30s. If your expectation of your future lifestyle has changed fundamentally, then you will need to adjust your retirement plan to meet these new requirements, and urgently. You may need to be more realistic about what you can achieve but you can also step up your game to change the outcome.

How should you approach this?

Rather than focusing on whether you’re on track to maintain the lifestyle you have now for the rest of your life, you can plan towards achieving financial freedom.

When financial advisers talk about financial freedom, they are typically referring to reaching a point where the income drawdown from your investments is low enough to allow capital growth in excess of inflation, meaning you’ll never run out of capital.

Exactly where this point is (how much your savings needs to be) in your own financial journey, will depend on your circumstances and requirements.

Working closely with a qualified financial adviser can help you work it all out, and to get your plan on track.

Some give and take

It may mean that you need to work for longer to get to the point of financial freedom. However, keep in mind that some opportunities are age-related as most companies have internal policies on retirement age. To earn income in your later years may mean that you need to become entrepreneurial, creating your own opportunities to supplement your financial goals.

Make the most of now

By engaging your financial adviser, you will find efficient ways of getting your savings to work for you. Pre-retirement vehicles, like pension funds and retirement annuities are very tax efficient and can reduce your annual income tax liabilities substantially. To get closer to financial freedom, find ways of complimenting this form of retirement provision with tax free savings vehicles, and ensuring you build these as savings habits. Prioritising this will pay-off, but it will take patience and perseverance.

The best is yet to come

To ensure you keep living in the way you hope to, take control of your financial destiny today. Remember that time waits for no one, it is in your hands to make the most of the available time.

V This article was originally written by Nirdev Desai, head of sales at PSG Wealth, and adapted for publication by Heinn Havinga, a financial planner at PSG Somerset Mall in partnership with Servaas Haasbroek and Jac de Wet.

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