With living expenses ever-increasing in South Africa, people should avoid the temptation of cashing in their retirement funds when changing jobs or when facing financial difficulties.<\/p>\n
Doing this could have long-term consequences and negatively impact their ability to retire comfortably with enough capital, said Hugh Hacking, GM of operations at Old Mutual Corporate.<\/p>\n
Referring to the 2018 Old Mutual Savings & Investment Monitor, Hacking said that 53% of South Africans have no formal retirement savings at all, with 38% planning to rely on their children to take care of them in old age and 32% expecting the state to do so.<\/p>\n
“When people face tough times they look for cash everywhere and the temptation to withdraw money that is meant for retirement can become almost irresistible,” he said.<\/p>\n
“However, this should be avoided at all costs because the decision to stay invested or not has a huge impact on your retirement outcome.<\/p>\n
“This is why it is so important to understand the benefits of `time in the market\u2019 and the compounding effect of being invested over a long period of time.”<\/p>\n
Power of compound interest<\/strong><\/p>\n Hacking illustrates the benefit of \u2018time in the market\u2019 with this example: if you start saving at age 25, you can accumulate investment growth of R915,000<\/strong> by age 65 by simply investing R178.74 per month<\/strong>, assuming a compound interest rate of 10% per annum.<\/p>\n However, if you only start saving at age 45 and you invest R1,381.24 per month<\/strong>, you will achieve investment growth of only R668,502<\/strong> by the time you retire.<\/p>\n Hacking said that people too often believe they don\u2019t have to think about retirement while they are young, and therefore only start saving later in their lives.<\/p>\n “However, saving for retirement should be a priority from the day that you receive your first salary,” he said.<\/p>\n “Even if you invest as little as R100 per month, that money will have 40 years to grow and accumulate returns. The best thing you can do for your \u2018post-retirement self\u2019 is to start saving for retirement as early in life as possible and remain invested.”<\/p>\n Hacking said that those who are fortunate enough to be invested in a retirement scheme as part of their employee benefits should remain invested in that scheme for as long as possible to ensure a favourable retirement outcome.<\/p>\n “Umbrella funds are a great way for employees to access retirement savings solutions as their employer will handle all the administration and pay the fees of the investment,” he said.<\/p>\n
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