The biggest retirement mistakes South Africans make

 ·26 Nov 2023

Investing for retirement is essential, but South Africans can often make mistakes when altering their long-term plans.

As we head into the festive season, 10X Investments said that many South Africans are changing their investment plans without considering the consequences.

“Many of us invest to receive our money back in years to come and enjoy a secure retirement. But not all of us get the opportunity to realise the full value of our investments,” 10X Investments said.

With this in mind, here are ten mistakes people make regarding their retirement savings:

Not educating yourself

A common mistake is not getting educated about retirement savings from a young age.

Those who start later miss out on the compound interest rate. Delays of just five to ten years can have a serious impact on future investments.

Retiring too early

People are living for longer, meaning that retirement investments need to be carefully planned so that users do not outlive their savings.

“Factoring aspects such as inflationary costs and realistic expenses at retirement age all has an impact on when you can afford to retire,” 10X Investments said.

High investment fees

High fees can quickly erode the growth of one’s retirement investments.

Incorrect asset allocation

“Many people make the mistake of making too conservative investments and too early.”

“Investors might be nervous about markets and volatility, yet it’s crucial to ensure what you get out is much higher than what you put in.”

Avoiding family planning

Partners should be involved in retirement investment planning early on.

Savings expectations and future implications on the estate should also be considered.

Active vs passive fund management

Passive funds outperform active funds over a longer period.

Active funds are good short-term investments as they try to outperform the market, but they struggle to beat the market over a 20-to-30-year period.

“Passive funds also help with diversification and for ensuring you get market-related returns.”

Not speaking to an independent financial advisor

Independent financial advisors can also help South Africans make good financial decisions.

“It’s important to always look for financial expertise and do your own research when planning your retirement. Financial planning doesn’t require breaking the bank to do so.”

Not saving enough for the future

Consumers often live beyond their means, and an increasing number of South Africans are becoming dependent on credit for basic living costs amidst the challenging economic climate.

However, increasing debt will negatively impact retirement savings in the future.

Taking out your retirement savings too early

“Try to avoid taking out of your preservation fund, as there are tax implications if you resign or leave. This money could be saved to grow in a retirement fund to avoid high tax penalties.”

Not taking advantage of employer retirement funds

Several companies will offer a provident or pension fund, and employees should take advantage of it.

Employees should contribute as much as they can on top of what the company already contributes.

“It’s important for employers to communicate and educate employees about their saving and investing a portion of their salaries for retirement.”

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