10 June 2019
The greatest risk that many people face is the lack of clear financial goals, accompanied by a step-by-step plan for achieving these objectives. Without these essential elements in place, it is impossible to know how much you need to save for retirement; and thus, there’s a risk that you won’t save enough.
The reality is, with every financial decision you make, you are either saving for the future or consuming your retirement today. The choices you make now could impact the rest of your life. With measurable objectives in place, however, you will know what to do when you are choosing between a luxury holiday or camping trip; or deciding whether to buy a new car or make do with the one you have. With clear goals in mind, you can make better-informed decisions every step of the way.
With a plan in place, you will also know in good time if you need to supplement your savings. For example, you could take the salary increase that you get for one year and put this extra percentage allocation towards your retirement savings. You will still be earning the same net salary as you were the previous year, while increasing your retirement contributions – a small sacrifice that pays off substantially in the long-run thanks to compound interest. Alternatively, if you are expecting a 13th cheque or bonus, you could commit a portion of this towards topping up your retirement savings.
If your current retirement policy does not allow you to make these adjustments, there are new-generation products available from Sanlam that you could use to supplement your retirement savings and keep your goals on track.
Longevity is one of the greatest financial risks that many people face today yet fail to plan for. Thanks to healthier lifestyles and advances in medical science, it is not out of the ordinary to live until 90 years or older. In this context, there is a risk that you might outlive your retirement savings, especially if you are faced with increased medical costs and general living expenses. For these reasons, it is important to factor the possibility of a longer life into your financial plans, whether this involves working for longer or increasing your monthly contributions to save more towards retirement.
When you move from one job to another, you may be given the opportunity to transfer your retirement savings to another fund. In this case, there is a risk that you could make a hasty decision based on short-term needs rather than long-term goals.
You may be tempted to cash in your retirement savings altogether. This means that you will be starting your retirement savings plan from ground zero again; and there is a risk that you will not have enough time left to save the amount you need to meet your financial goals for retirement.
Ideally, before making these crucial decisions, you will need to weigh up whether you have enough time left to make up the losses you could incur or whether you have the appetite to invest more aggressively.
There is a risk that, when markets are performing poorly or your finances are stretched, you may make an emotional decision to cancel or tap into your retirement policy. While the short-term relief might seem appealing, it is important to consider the impact that this could have on your retirement lifestyle.
Saving for retirement is a long-term journey. If you sell out your investment during tough times, you are likely to realise a loss. If you stay committed, it is more likely that you will sail through the peaks and troughs. Essentially, you need to ascertain whether you are making a financial decision based on emotion or logic here.
Finally, with any savings plan, there is a risk that you could become complacent. If you set your financial goals at a young age and you are diligently saving every month, it is easy to sit back and believe that your retirement plans are on track. However, the goals you set a few years ago might not serve your best interests going forward.
It is therefore a risk not to review your financial plan annually with your financial adviser, who can help you to make sure that your plan matures at the same pace as you do – as your career progresses, your lifestyle changes and your goals evolve. With a clear, relevant and regularly updated plan in place, you can manage all these risks carefully and safeguard your financial future. Ultimately, the best approach is to speak to your financial adviser for personalised guidance.