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Saving for retirement a must

Saving for retirement a must

By Hilaria Graig

Marketing and Communications Manager

Sanlam Group Marketing

Did you know that July is national Savings Month? Originally, savings month was a savings awareness campaign developed in South Africa but soon found its way to Namibia. Savings month is aimed at promoting debate around key aspects of saving, raising awareness of the benefits of short, medium and long term planning, building relationships with key partners to leverage future opportunities and getting consumers to move from ennui into action.

I am sure we can all agree that there are many things that one has to save for, but saving for your retirement is most important and unavoidable. When one starts out their career, they are advised to save 15% of their gross salary for their retirement. This means that one has to save for about 35 years to live the same quality of life after they retire as they did before the time.

Traditionally, one reaches retirement at 60 years of age and with life expectancy in Namibia increasing we are generally living longer and hence the need to save for our retirement years. The latest statistics by the World Health Organisation indicate that life expectancy in Namibia has risen to 64 years for men and 69 years for women. The importance of savings for one’s retirement can therefore not be overemphasised.

According to the Financial Literacy Initiative (FLI), 89% of salaries in Namibia are paid to service debt leaving very little household disposable income let alone anything for savings. At the same time, research indicates that 51 percent of Namibians are financially literate, but only a mere 32% of this population implements their knowledge of financial literacy.

This data paints a clear picture, that Namibians do not have enough long-term saving plans such as retirement savings for future use. While retirement can seem so far out in the distant future, it is important to have a special retirement savings plan to be able to afford oneself the same quality of life as before retirement. . All too often people entering retirement do not place enough emphasis on personal planning to ensure they maximise their opportunities. This often results in people having to work long past their retirement years to make ends meets or elders depending on their children to look after them during their retirement years.

It is imperative to take the time now – at an early stage in your planning process to think about the choices available to you in preparing for your retirement. Saving for retirement should not be left to the last minute, with proper planning you can start saving for retirement today. This can be done either, by investing a lump sum or some of your salary each month or you can grow your money over time so that you can retire comfortably. Regardless of how much you need to or can afford to save, the most important thing is to start and stay committed to saving.

It is a fact that the economy has not been doing well of late. In December 2016, Namibia slipped into a technical recession with statistics showing the economy had contracted by 1 percent between October and December 2016. Recession is a period of temporary economic decline, during which trade and industrial activity are reduced and it is generally identified by a fall in the Gross Domestic Product (GDP) in two successive quarters. The latest data reveals that the country has been in recession for three consecutive quarters.

As a result of this, companies are closing down or cutting costs by reducing labour as one of the alternatives to manage and still be able to make a bit of profit. This is a reality one must be prepared to face, not just emotionally but financially too. According to statistics from the Namibia Labour Force Survey 2016 released last month by the Namibia Statistics Agency, the number of people employed in 2014 dropped from 708,841 to 676,885 in 2016. But employment is often not guaranteed, thus the need to be prepared.

The Construction Industries Federation (CIF) of Namibia last month said 63% of businesses have either closed down, are dormant, or have scaled down operations drastically. The federation estimates that between 1 September 2016 and 31 March 2017, about 30% of the workforce was retrenched. If you are retrenched or change jobs, you can maintain your retirement plan by moving it into a preservation fund. You should resist the temptation to cash in your savings, as it will be very hard to make up for the value you’ll lose.

If you are retiring soon or are already retired, you need to draw a monthly income from your savings to maintain your lifestyle. You also need to manage your retirement savings to ensure it lasts throughout retirement. A comprehensive retirement annuity can fulfil all these needs or a specific requirement you may have, assisting you to maintain your financial independence during your retirement. Retirement is a fact of life. The question lies on what to do to ensure that you retire in comfort. When you retire, your needs do not magically disappear, bills will still need to be paid and you will still have a life to live and need things that require money.

Upon reaching retirement age, all Namibians automatically qualify for the government old age pension (currently at N$1200 per month). This makes a difference but is hardly enough to get one through the month especially when one is used to a regular and larger monthly income. For previously employed pensioners, the pensions and government senior citizens grants should just offer an additional source of income and not serve as the primary source of income.

Retirement plans such as the Sanlam Namibia’s Retirement Annuity is an effective way to save for retirement because:

  • Your savings provide you with an income in your retirement years;

  • When you retire, you may take up to one third of your accumulated savings in a cash lump sum. The rest is used to provide you with a monthly income;

  • Your retirement annuity contributions to Namibian registered pension, provident or preservation funds reduce your taxable income up to certain limits (i.e. your premiums are tax deductible), and the growth on your investment is tax-free;

  • Your retirement savings are safe regardless of any personal financial loss you may suffer. This means your savings are protected from creditors;

  • The Retirement Annuity gives you an option to add other benefits like death cover, disability cover and waiver of premium.

To ensure you retire comfortably and maintain the lifestyle you desire, make the smart move and start saving today. Planning for your retirement is essential, and retirement investments that you make today, will pay off in the long run.

About The Author

Guest Contributor

A Guest Contributor is any of a number of experts who contribute articles and columns under their own respective names. They are regarded as authorities in their disciplines, and their work is usually published with limited editing only. They may also contribute to other publications. - Ed.