Your pension is for life, don’t blow it
By now nearly everyone should have heard about the new two-pot system soon to be implemented with the intention of preserving pensions while offering some leeway in accessing emergency funds. All it does is emphasize the need to keep a worthwhile amount of your pension actually out of your hands – a necessary protection because so many people are their own worst enemy when it comes to securing a viable retirement future through the solid growth of their company pension funds.
Preserving your pension and resisting the temptation to spend it before retirement is essential for securing your financial future and ensuring a comfortable retirement. But with that comes the complexity of changing companies, moving home, starting afresh with different financial strings attached. So often the quickest route out of trouble may be to simply withdraw funds as you need them.
But so often, the result of this is disaster. Your pension value ends up dropping year by year, instead of growing to meet future expenses. However, with careful planning, discipline, and a clear understanding of your financial goals, you can take steps to safeguard your pension and avoid unnecessary spending. So even if you are able to take money out of your pension for any reason or at any time, think twice. Best to think of another solution, another way.
Keeping practical reality in view
- Most people will tell you to determine how much you will need to save for a comfortable retirement. But this is a difficult figure to calculate with certainty. Inflation and rollercoaster economies can eat away what initially seem like concrete plans. However, it’s best to start with some goals rather than none. Begin by defining your long-term financial objectives and retirement aspirations. How much will you need? What is your desired lifestyle? What are the anticipated expenses? At what age do you wish to retire? It gets complicated…but having clear goals will provide you with a sense of purpose. And this is vital to resisting the temptation to spend your pension prematurely.
- Once you have those basic questions answered, it’s time to do the hard work. Develop a comprehensive budget that outlines your income, expenses, and savings goals. Track your spending habits to identify areas where you can cut back and save more towards your retirement. If you have a company pension, make sure you contribute the highest percentage of your salary allowed. And if you have a personal supplementary pension (which is a good idea), allocate an affordable portion of your income to that fund every month.
Keeping that pension safe and solvent
Automatic savings mechanisms help to maintain useful contributions to your pension (or pensions), as well as any savings or investment accounts you may have included in your portfolio. Setting up automatic transfers from your salary to retirement savings helps to avoid spending that money by accident or through poor discipline, eliminating the temptation to spend your pension funds.
People will talk about diversification, which is not complicated but certainly a valuable tactic in the preservation of your pension. It simply means that you spread your retirement savings across a diverse range of asset classes, including stocks, bonds, real estate, and alternative investments. This actually keeps one’s motivation and interest alive, presenting choices while reducing risk and volatility, keeping you focused and resilient in the face of market fluctuations.
And then, depending on your personality, avoid impulse buys. This may be difficult or easy depending on how you view material possession, but resist the urge to make purchases that could derail your retirement savings goals. Sometimes you may be forced to break your personal banking plan, but take time to evaluate the impact on the longer term. Spending on short-term gratification over long-term pension savings can break your good habit, and set you on a negative path. Don’t do it.
Five steps to making savings a sensible habit
- Tip one: Establish an emergency fund to cover unexpected expenses and financial setbacks. Having a cushion of savings can help prevent you from tapping into your pension prematurely in the event of an emergency.
- Tip two: Stay informed about changes in pension regulations, investment options, and retirement planning best practices. Educate yourself about the potential risks and challenges associated with spending your pension prematurely, such as outliving your savings or facing financial insecurity in retirement.
- Tip three: Visualise the retirement lifestyle you would prefer. This can serve as a powerful motivator to preserve your pension and resist the temptation to spend it before retirement.
- Tip four: Celebrate your financial milestones and achievements along the way. Nurture diligence and a long-term perspective. This will work to boost your confidence, reinforce positive financial habits, and inspire you to stay the course.
- Tip five: Consult with a financial advisor or retirement planner to develop a personalised retirement strategy tailored to your individual needs and circumstances. A professional advisor can help you set realistic savings goals, navigate complex financial decisions, and stay on track towards achieving your retirement objectives.
Empfin Solutions – the team that keeps your team happy
We’re an Old Mutual franchise with our primary focus on the three main areas of concern in everybody’s financial planning:
- Your Company Benefits – advising on, and servicing umbrella pension and provident funds.
- Your Personal Financial Planning and Provision – Estate planning, Wealth Creation and Retirement Planning.
- Your Assets – motor and household insurance.
Always striving to be a trusted partner in facilitating financial solutions for organisations and individuals, our dedicated team of fully accredited, experienced professionals have a passion for satisfying customer needs and providing a truly client-centric service.
Find out how you can benefit at: www.empfinsolutions.co.za
