FAQ's on Retirement by Young Professionals

• Is retirement an out-of-date pipedream?

With rising living costs and economic uncertainty in South Africa, it’s not surprising that people feel this way. But what we see as “retirement” is changing, the traditional retirement age of 65 has already started to look different because people live longer. We live in a time where passive income and part-time work is as easy as ever and done from anywhere. Although retirement is continually evolving it still is more important than ever to start investing as early as possible and stay consistent over the long-term.

• Employer matching your pension contributions, should you max it out?

Yes definitely. It’s free investment allocations and effectively instantly doubles your contributions. The higher the contributions, the better the compounding effect of the capital. You can also deduct your employer’s contributions together with your own contributions in your annual income tax returns.

• Are there other ways to supplement your retirement income?

There are many discretionary investment structures (non-retirement) that hold massive tax-and estate planning benefits. It's always a good idea to diversify in the structures that you use to invest because they can be so different. This is true for the actual assets as well, never have your eggs in one basket. Building a business or renting out property can also be effective but holds it’s own risks.

• Should you pick the most aggressive investment option for retirement?

If you have time on your side, going more aggressive is the optimal long-term strategy if you can stomach short-term volatility in assets like shares. In South Africa, all pre-retirement structures must adhere to Regulation 28 of the Pension Funds Act and this does limit the level of risk you are able to take with your retirement funds, but alternative structures can supplement your risk appetite. Time in the market is always better than trying to time the market.

• What are common retirement investment mistakes?

1. Starting too late.
2. Not saving enough, at least 20% of your monthly income should be invested.
3. Regularly switching between different funds and assets due to short-term volatility (bad investor behaviour).
4. A lack of diversification.
5. Failing to adjust your plan as you go – marriage, kids and inflation play a role.

Ruvan J Grobler RFP™