Preserve and get what you deserve in your golden years

Patricia Olivier Chief Executive Officer Old Mutual Corporate Segment

Did you know that retirement planning and its benefits is all up to you? There is no legislation for example, compelling you as a member of a retirement fund, to preserve your benefits when exiting the fund upon changing an employer. In fact, currently members of retirement funds may take 100% of their retirement savings in cash and most do. Doing so however will probably add to a series of obstacles standing between you and your retirement goals which may be to retire with financial independence. Perhaps you haven’t even given retirement much thought, always thinking it is taking care of itself, or that your employer will ensure a gilded retirement package after all the years you’ve given them.

Recent Savings and Investment Monitor Survey (2019) reveals that only 8% of respondents know how much their retirement fund/savings is currently worth in Namibia Dollars. That means, many Namibians live in the now and have the mindset that tomorrow takes care of itself. In reality saving today takes care of tomorrow. Statistical evidence suggests that only 6% of people retire financially comfortable. But ask yourself the question:

What have you actually arranged to preserve your retirement savings?

Young people often view saving for retirement as an unnecessary sacrifice. For those over 40 years of age, there is a general belief that it is too late to do anything about their financial security. The truth is that if you delay thinking about retirement, you cannot plan for it now and your current lifestyle will continue to consume your income such as going on holidays, paying school fees, paying towards a house or even a nice car. These are all present and every day expenses. However, time flies and while you focus on immediate costs, waiting for the right time to start saving, retirement approaches quickly. Actually, starting to save for retirement can’t wait till next year. It is also risky to assume that you won’t reach retirement especially as improving health standards means people are living longer. The question remains, when your retirement arrives, will you be ready?

We often hear about the wonders of compound interest and like the mighty African Baobab tree, time is an essential component needed for achieving full growth potential. More often than not, members when faced with the choice at exit from their retirement opt to take their accumulated benefit in cash. Usually, most of it is spent quickly and very little is converted to alternative forms of savings/investment. When that happens, people then need to start right from the beginning in saving for retirement. The graph below shows how difficult it becomes to achieve retirement goals when starting later in life.

If you save 10% of your salary for retirement from age 25 to age 65, with investments returning 4.2% above inflation annually, it is expected to produce retirement savings equal to 8.9 times annual salary by age 65. This should be able to purchase a pension equal to 70% of salary at age 65.

If you start 10 years later and save/preserve from age 35, the required net contribution rate to achieve the same goal increases to 16% of salary. This increases to a 29% required net contribution rate if starting another 10 years later from age 45. This is why starting to save early and always preserving when changing jobs is a wise decision that will make a huge difference to your quality of life in retirement. The opposite is true, not preserving retirement savings leads to low retirement benefits for most people.

What options do you have to preserve your retirement savings?

You can preserve your retirement savings by transfering your accumulated benefit to your new empoyer’s retirement fund. To do that, speak to your relevant human resources department.

Alternatively, you can also transfer your accumulated benefit to a Preservation Fund or Retirement Annuity Fund. In Namibia, individuals who transfer retirement savings into preservation funds are allowed to withdraw their benefits within 3 years of the money being paid into the preservation fund, thereafter they must wait until age 55 to retire from the preservation fund. A Retirement Annuity is a savings mechanism that allows a member to make regular payments into an Investment Product. The savings can only be accessed at Retirement (from age 55) therefore no withdrawals are allowed from the fund. It is possible to stop payments and allow it to become a paid Up/Deferred Annuity. At Retirement, up to one-third of the benefit can be commuted tax free and the remaining two-thirds must be used to purchase a pension.

A financial advisor can assist you in choosing what is the best way to start saving or preserve your retirement savings. If leaving your employer and your retirement fund for example, preserve retirement savings as far as possible. Whatever choice you make in preserving your retirement savings, consider expenses that will be charged and expected future investment returns. High expenses eat away the value of your retirement savings. A poor investment strategy could fail to add sufficient interest, which is required to retire comfortably.

As with so many things, you are in control. Take charge of your finances and make sure you preserve your present lifestyle and financial habits well into your golden years. The secret to saving for a pension is to start early. If you want a beautiful garden with plants, flowers and trees you have to start with planting small shrubs, seeds and constantly watering and attending to the garden. It will give you peace of mind and secure your future, which may be twenty, thirty or forty years away, but still needs to be taken care of today.

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