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Plan your retirement while you’re young

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Property will benefit your pension portfolio

If you haven’t started planning for your retirement, don’t feel alone. A growing number of South Africans are leaving this for later, hoping they will be able to make a clever plan when the times comes.

And some – a whoppping 40% according to the July 2017 Old Mutual Savings and Investment Monitor report – believe it is their children’s duty to financially support them in old age. However, the “the sandwich generation” – who are financially looking after not only their children but also their parents – are already overstretched.

Relying on them is not a failsafe plan and South Africans are time and again advised to take ownership of their retirement as early as possible. Investing in property or having money saved in a retirement fund are two ways to do this. But, Just Property Invest’s Minette du Plessis says property still has the best return, especially if you are starting later in life.

“You can enjoy the cumulative growth – the combination of capital and rental growth – of a property investment. “If you buy a property for R1million and let it you could put the rental income, and the money that you would have been paying into an retirement annuity, into the bond.

“This means you could break even on that property after just three to four years. Then you could buy another property and build an investment property portfolio,” says Du Plessis.

“By the time you are retired you will have a good, stable income and assets that have appreciated over time.” You don’t need lots of cash to buy an investment property as the four major banks offer 100% bonds to first-time buyers and clients with good criteria, she says. “If you earn R30000 a month and have a good credit record, you will probably qualify for a R1m bond.

“The large investment firms have calculators that will help you quickly work out what you need to put away for the lifestyle you want after you retire.”

On the other hand if you put money only into a retirement fund, it may not leave you enough to buy a property and to live off when it matures. Take for instance a 36-yearold today who wants to retire at 60 and who earns at least R30000 a month – which will be “very low” in 24 years’ time. They will need to save 17% of their income every month towards retirement. 

“When the investment matures, they can only withdraw 33% of the total in cash (unless the total value is less than R247 500), and the rest must be invested in a pension vehicle. This does not leave them with much.” With the number of elderly in South Africa increasing (an estimated growth rate over time rising from 1.21% for the period 2002 to 2003 to 3.21% for the period 2017 to 2018) it is important to think of the future, says Arthur Case, chief executive of retirement brand Evergreen Lifestyle. 

“There are a hundred scenarios that could hinder your careful retirement plans. Many people see retirement as something older people need to worry about or believe they’ll be able to pull a rabbit out of the hat when the time comes. But it’s important to think of the future.” For those who think their kids will look after them, a study by CreditCards.com found that almost 75% of parents in the US had to help their children with their finances. So no plan can be 100% set in stone, says Case.

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