*This content is brought to you by PSG
By Nirdev Desai*
By age 35, you have probably settled into your career, with 10 or more years’ experience, and if you’re doing well career wise, you are probably earning a reasonable income. In terms of life stages, you may be settling down with a partner, possibly having children, and you may even be financially assisting your parents or other relatives. Now is the time to be money savvy and make some smart decisions that will keep you financially on track for the long term.
Pay yourself first
The best thing you can do for those around you, is to take care of yourself. Planning ahead for your retirement is crucial if you want to be among the 6% of South Africans who are able to retire without taking financial strain. This is an important juncture to determine how your income will work for you.
Be aware of income risks
It is also crucial to remember that while you may be steadily working towards the peak of your career, and by extension, earning potential, you may not be earning that realised potential all the way through to your expected retirement age. An example is Covid-19’s effects on livelihoods – setbacks in your earning potential are real. Plan for these risks, and the potential irregularity of your income stream, to provide the required savings stream for retirement.
Don’t underestimate the impact of retirement tax breaks
The next 10 to 20 years of your career could be your best earning years. Since you’ll be earning more, it is critical that you take advantage of the tax breaks available for retirement savings to reduce your tax liability. Currently an individual can take advantage of annual retirement provision of 27.5% of their taxable income up to a maximum of R350 000.
Be realistic about your income requirements at retirement
Be careful of increasing your retirement income expectation as your salary increases, as this will fundamentally change the savings requirements you need to meet. If you have been engaging with your financial planner from ages 25 to 35, you would have understood and framed your expectations of a comfortable retirement, and you should be well positioned to achieve this. If you haven’t, it is crucial to understand what is needed to provide for retirement.
Don’t put off saving for retirement any longer
Most people have very little saved up at this juncture in their lives, but now is the time to get serious. If you haven’t started saving yet, or if you have a substantial difference in your retirement needs now compared to when you started saving, you’ll need to put away a substantial part of your current income to meet your requirements. Someone who only starts saving at age 35 needs to put away five times more each month, compared to someone who started saving for retirement at age 20 to have the same savings accumulated at retirement. Any further delays will only make it more difficult – and eventually impossible – to keep up.
However, the good news is that retirement for the average 35-year-old is still 25 to 30 years away. With this long-term horizon, you can afford to take maximum exposure to growth assets, such as equities. Although the returns you’ll earn with these assets are likely to be volatile over short periods, over the long term they are well placed to deliver the growth you need. As the old adage goes, it is time in the market, not timing the market, that will ensure financial success. But this means nothing if you no longer have time on your side to use to your advantage.
This is the decade to take decisive action and ensure your retirement plans are on track. Meeting with a qualified financial adviser can help ensure you are making the most of the time at your disposal.
- Nirdev Desai is the Head of Sales at PSG Wealth.