“If you fail to plan, you are planning to fail.” It has been over two centuries since US statesman Benjamin Franklin shared this oft-quoted piece of advice, yet – as retirement statistics show – most still fail to take it to heart.
According to National Treasury, 94% of people do not retire with adequate financial resources. Wouter Fourie, co-author of The Ultimate Guide to Retirement in South Africa, says if you want to ensure that you don’t end up in this precarious position, having a plan for your retirement is priority number one.
“Number two is you need to take inflation into account, and three, you need to utilise the tax benefits that are available in terms of retirement planning,” says Fourie, who won the Financial Planning Institute’s Financial Planner of the Year award in 2015.
Legislation allows taxpayers to contribute 27.5% of the greater of PAYE remuneration or taxable income towards a retirement fund and deduct that full amount from taxation, subject to a limit of R350 000 a year.
“By utilising that, you actually benefit from investing in your future and being subsidised by Sars (South African Revenue Service) in the process. Also, within your pension fund, you don’t pay any tax on the growth within it, so it is by far the best investment you can make – to contribute to your pension fund.”
Latest information
This is but the tip of the iceberg when it comes to the wealth of information contained in the recently released third edition of The Ultimate Guide to Retirement in South Africa. Written by Bruce Cameron and Fourie, the book serves as a valuable resource for people seeking credible and understandable financial information to navigate their retirement journey.
The third edition includes current legislation, 2023 tax and Budget updates, as well as up-to-date investment, retirement, and life annuity tariffs. Fourie says, having learned from the previous two books, the latest edition emphasises the risks to the individual. It also incorporates lessons learned from Covid-19.
“We sat down, and we said, we needed to give guidance in terms of retirement planning. We focused the book on people 10 years away from retirement, as well as people in retirement. The ideal would be to get hold of this as soon as possible, pre-retirement, but also if you are in retirement.”
The chapters in the book speak to the benefits of saving towards retirement and the important factors that need to be taken into consideration, such as health care, estate planning, and where to stay when you retire. It also has a dedicated chapter on the unique challenges faced by women in financial planning and how to address them.
“It’s really comprehensive, and that’s our aim: to provide a comprehensive guide to retirement planning specifically focused on the South African environment.”
Keeping it in the family
Fourie says the high unemployment rate in South Africa and the country’s significantly large sandwich generation (middle-aged adults who are caring for both elderly parents and their own children) put lots of pressure on retirement funds within families. If not for themselves, he advises the younger generation to buy this book for their parents because if you don’t prepare your parents for retirement, your parents’ retirement will become your problem.
“People don’t enjoy sharing their financial situation with their children or with their parents, and I think this is a good way to start that family discussion, to make sure that you invest in your future by looking after your parents, making sure they look after their future.”
He recommends that readers of the book seek advice from a Certified Financial Planner to help them interpret some of the difficult aspects of retirement planning. Financial and retirement planning, he says, is not a one-size-fits-all.
“It is individual-based. It needs to be adjusted to your specific situation and circumstances, and that’s why we say this book is a guide. This is not a solution. It’s a guide to provide you with information to ask the right questions and also to make informed decisions.”
Ask for advice
Fourie, the chief executive of Pretoria-based Ascor Independent Wealth Managers, meets with clients daily to discuss their retirement needs and planning.
“I have been in the industry for over 26 years. The biggest mistake that I see is people who do not ask for advice, people who think they can sort it out on their own. It’s a complicated environment. Retirement planning is not just about numbers. It’s also understanding behavioural finance, the markets, the risk of taxation, and estate planning. You need to equip yourself with knowledge in terms of the broader picture, and then you can zone in on what your specific needs and requirements are.”
He says a good example is people who made the mistake of buying level-premium life annuities and ignored the effects of inflation.
“As we’ve seen in the past year, inflation numbers just ran away, which means that the money that you earned five years ago and the income that you relied on five years ago is a different number today. You have to take inflation into account. Another common mistake is that people do not take higher medical inflation into account.”
Two-pot retirement system
Currently, he says, the biggest concern in the industry is the uncertainty surrounding the two-pot retirement system.
In June, National Treasury and Sars published the revised 2023 Draft Revenue Laws Amendment Bill and 2023 Draft Revenue Administration and Pension Laws Amendment Bill for public comment. These draft bills provide the necessary legislative amendments required to implement the first phase of the two-pot system. The comment period closed on 15 July.
National Treasury plans to implement the two-pot system on 1 March 2024.
Read: Latest proposals on how the two-pot retirement system will work
Among other things, the two-pot system gives taxpayers the option to withdraw one-third of their retirement benefit in cash before they retire without having to quit their job or resign from their fund.
Read: Two pots: fund members must understand the implications of withdrawals
The one-third will be accessible to individuals annually, where the fund member will be allowed one withdrawal. Fourie says this can become a problem if people withdraw regularly and not benefit from the tax breaks that come with saving until retirement.
“But if you look at the bigger picture, the two-thirds are being protected. This will preserve pensions going forward. Yes, you can approach it to say Big Brother is taking over your process, but it’s to protect pensions going forward. So, it’s a good thing. It’s not something that is detrimental to the individual in the long run. You can be very glad that you’ve done this and that you’ve preserved two-thirds of your pension pot.”
Sponsored by Alexforbes, the third edition of The Ultimate Guide to Retirement in South Africa has been recognised by the Financial Planning Institute of South Africa.
The book, retailing at R275, is available at most leading bookstores, as well as online at www.retirementplanning.co.za.
