According to a commonly accepted statistic, around 94 percent of working South Africans do not save enough for their retirement. A major contributing factor to the chronic lack of savings is a lack of basic education about the need for effective retirement planning.
This is according to Gavin Came, Chairman of the Financial Planning Committee for the Financial Intermediaries Association of Southern Africa (FIA), who says there are a number of common misperceptions about how to effectively save for retirement.
"It is critical for consumers who are concerned about saving for their retirement to consult an experienced financial advisor who, above all, is able to assist those who may be most prone to deviate from their financial goals. Surveys undertaken by the financial planning group ACSIS have shown that people with financial planners are up to 50 percent more comfortable that they have done enough for their retirement than people who do not have a financial planner."
Came says one of the most common reasons for not implementing a retirement plan is the perception of many small business owners that the disposal value of their business will secure their retirement.
"The fact is, because the business owner is contemplating retirement at this crucial time, the value of the business automatically diminishes. Also, by their nature, small enterprises are linked to a particular market or sector and, should a downturn in that sector coincide with retirement of the owner, a retirement plan based purely on business disposal can be destroyed.
Came says depending on the type of business there may also be a long lead time in actually selling and often buyers wait for a lower price, knowing that the owner needs to retire. There is also the very real possibility that it won’t be sold at all.
"The best way of limiting the impact of this is to use other retirement vehicles such as retirement annuities to diversify away from total or significant dependence on this one source of retirement capital or, as a last option, allow time to secure a good price for the business.
"Another major mistake is spending withdrawal benefits after changing jobs."
Came says compared to the past where people usually remained in one or two roles, at most, the modern day working person typically enjoys a number of jobs in their working life.
"One of the consequences of this trend is that people are more regularly tempted to take their accumulated retirement capital from each of these jobs when they resign. Worse still, a number of people deliberately switch jobs to gain access to their accumulated retirement benefits. As a result, when they eventually retire, their only capital available is the retirement fund from their final place of employment, which is never enough to retire comfortably.
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