Retirement planning is vital for those who want to live a comfortable and enjoyable life when they retire. It would definitely be wise to plan early for retirement.
Every year more people are becoming aware of the financial implications that come with not saving for their retirement. The biggest problem is that nobody thinks about retirement when they are younger. This can be detrimental to your retirement vision. By saving early, you can easily double your retirement savings by starting in your early 20s as opposed to in your late 30s.
Retirement planning consists of three types of policies…
A Retirement Annuity
This is a policy taken out by an individual (not through an employer) to help them save towards their retirement. It can either be issued through a financial advisor or directly through an investment company and can only be withdrawn at the selected retirement age (either 55, 60 or 65 years old).
A pension fund refers to when a company contributes towards an employee’s retirement savings. The company may either opt to pay the full amount or split the monthly contribution between the employee and the company. The funds may only be withdrawn upon the selected retirement age (as above).
A provident fund is similar to a pension fund where the employer contributes towards an employee’s retirement savings plan. The difference with a provident fund is that you may transfer your savings over, should you ever leave the company and move to an organisation that uses a different investment or insurance company.
Nowadays, transferring of provident funds from one company to another (called a Section 14 Transfer) is becoming more regulated. It has become the responsibility of the existing investment company or a financial advisor to advise an individual whether it is in their best interest to transfer their savings to a new organisation or whether they will end up losing money.
It is important to note that provident funds are likely to be done away with in 2015, and a new rule will be implemented so employees can no longer withdraw funds before retirement age. This is being done to protect the millions of citizens who cash in their policies early, hence leaving themselves and their families desolate later in life.
This has been found to be more prominent in the lower income groups, where people are in need of money. They are finding that the monthly R1 200 retirement grant given by the Government, is not sufficient enough to sustain them.
Retirement lasts for 40 years – this is almost as long as a person’s working career … Makes you think, doesn’t it?!