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Video: How we sabotage our retirement

Dec 1, 2022

For most of us, retirement is one of our most important goals. Putting away money for our retirement is probably the biggest investment we will make in our lifetime, yet we find so many ways to sabotage our retirement goals.

The most common mistake is cashing in our retirement fund when changing jobs. If you cash in at the age of 30, you reduce your retirement income by one-third.

In order to play catch-up you would either have to increase your monthly retirement contribution by 22% or delay your retirement by five years.

The earlier you start and the longer you leave your money, the less you actually need to save. But as we get closer to retirement age, there are other ways in which we sabotage our retirement plans.

Five ways in which we sabotage our retirement

Mistake number one is not settling debt before retirement. Ideally you would want to be debt free by the age of 55 so that you can concentrate on boosting your retirement fund rather than paying interest to the bank, but at the very least you should aim to be debt free by the age of 60.

How we sabotage our retirementFrom the age of 45 you need to start making debt repayment a priority. This is not a time to be taking on more debt.

Mistake number two is thinking that your house is a retirement asset. Many people include their homes as part of their retirement plan with the belief that they will downsize and use some of the property capital to provide additional income.

The reality is that smaller homes or homes located in a retirement village come at a premium and have additional costs such as levies. Your home should not be part of retirement calculation.

Mistake number three is underestimating how much money you will need in retirement. You will spend more on medical costs after retirement, so you need to include this in your retirement budget.

You will also have more time on your hands and may want to travel, or have outings and experiences. In retirement you have more time to spend money.

Mistake number four is forgetting about tax. You still pay tax in retirement if your income exceeds the income tax threshold. This is the minimum amount you can earn before you pay tax. The only good news is that this threshold increases with age.

You may also find you are paying tax on interest you receive from deposits in the bank. If you are over the age of 65 any interest you earn that exceeds R34 500 a year is added to your taxable income.

Depending on your investments, you could also be liable for capital gains tax. Make sure you have made provision for these taxes in your retirement budget.

And mistake number five is not planning for retirement. This is perhaps the biggest way in which we sabotage our retirement goals.

At least five years before retirement you need to work with a qualified financial planner to ensure that you have a plan in place. This is an opportunity to increase your contributions, but also to decide if you can afford to retire or if you need to postpone your retirement plans by a few years.

You also need to decide how you will maximise your investments for both retirement income and tax efficiency. For example, including a tax-free savings account as part of your retirement plan can provide you with an additional tax-free income in retirement.

As with all things in life, things usually go better when you have a plan. So don’t wait for the day before retirement.

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Maya Fisher-French author of Money Questions Answered

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