The key to having sufficient funds to retire comfortably does not solely depend on how early one starts saving; but should also consider how much one is saving and whether contributions and return objective are in line with inflation.
Preenay Sathu, Channel Head for FNB Financial Advisory, says, “Inflation is the rate at which the price of goods and services such as bread, milk, transport and education rises over a certain period. As inflation increases, there are many considerations we must take cognisance of. With rising inflation comes increased consumer pressure to sustain living on the same level of income. This change in cost of living also impacts expenses that one would encounter at retirement and as such directly impacts our retirement aspirations which would need to be reassessed.”
“When saving for retirement, inflation should be taken into consideration by means of ensuring that whatever amount is saved matches or can beat inflationary increases. This is to ensure that at retirement you have saved enough to maintain a certain standard of living,” he adds.
In essence, it becomes imperative that we match our annual premium contribution increases to at least match inflation to ensure that we can safely meet our retirement goals. Inflation is very dynamic and therefore becomes difficult to predict over the short and long term, hence careful planning and reviews become imperative to long term success. Most financial services providers consider inflation when structuring retirement plans. However, as an investor you may have to check on a regular basis to ensure you are contributing within the acceptable inflation range.
The unfortunate reality is that most individuals carry debt into retirement and require a substantial portion of the retirement savings to settle such debt. This further burdens one’s income requirements and ability to fund such income requirements over a prescribed period of time.
According to Sathu, besides matching your annual premium contribution increase for retirement to inflation, there are various other ways to bulk retirement savings.
“Instead of solely relying on your employer pension scheme, supplement it with another retirement vehicle such as a retirement annuity. Another option is to diversify your investments by ensuring that your portfolio has fair weighting to different asset classes such as shares – while they may be volatile in the short-term, shares are likely to produce higher than inflation growth in the long-term.”
Other asset classes one could have exposure to as part of the total investment portfolio is cash, bonds, property, commodities which can be a combination of local and offshore. If you are fortunate enough to get a bonus from your employer, direct a portion of it towards your retirement savings on an annual basis.
“Like any other investment, it’s important to pay close attention to your retirement savings to avoid surprises when your working life comes to an end,” concludes Sathu.