Late starter? Maximise your retirement savings

If you’ve reached middle age with minimal savings, you’re not alone. Financial services group Just SA’s 2022 retirement survey indicates that 57% of respondents aged between 50 and 85 years expect to ask their children for financial support in retirement.

This article offers some saving and investment tips for late starters.

Tip: Are your debts preventing you from saving? Consider debt consolidation.

Plan to save more if you can  

Middle age is when most people start thinking seriously about retirement. In a best-case scenario, you will have been working for around two decades, be at the peak of your career, and not be responsible for raising your children for much longer. However, if you’ve experienced some setbacks – a divorce, retrenchment, or financial loss – you may be in a shaky position.

You can’t make up for time not spent in the market, but all is not lost if you’re starting to save in middle age, says financial planner Sylvia Walker. “The first step is to change your priorities and invest, which can require a mental shift,” she says.

Kyle Wales, global portfolio manager of Flagship Asset Management, says you should save money through a tax-free savings account, in which you can invest up to R36,000 a year or R500,000 in your lifetime, or a retirement vehicle, which offers an annual limit of R350,000.

“Bear in mind, however, that there are restrictions on how the money can be invested and when it can be withdrawn,” he cautions.

Wynand Gouws, wealth manager at Gradidge Mahura Investments, says you should make regular contributions to your personal savings, if possible, so you can benefit from tax deductions.

“You should also make sure your pension fund is invested wisely so it can grow over the next two decades,” he says. He adds that you should pay off any debt as quickly as possible, as this can deplete your retirement funds.

Understand your time horizon

Walker recommends enlisting the help of a financial planner or accountant who can calculate how much money you’re likely to need in retirement. Once you have an idea of this, you can work out your shortfall, based on the assets you’ve already accumulated.

If you have a long investment horizon, such as two decades, it may pay to take on some risk.

“Include offshore funds in your portfolio, as these deliver excellent long-term returns,” she says. “Note, however, that there are restrictions in terms of how much you can invest offshore through an RA.”

Gouws recommends finding a “workhorse” in your portfolio that will deliver strong performance over time.

“This could be an actively managed equity fund or a globally diversified fund, like a unit trust or an ETF, or a hedge fund with an established track record – 10 years is advisable,” he says. “But do steer clear of any speculative investments.”

“To diversify, you may want to consider an alternative to the traditional financial market investments, such as buying a rental property with the aim of having it paid off by the time you retire,” Walker adds. “Then your rental income less expenses can form part of your retirement income. However, this is a complex area, and you will need to be a hands-on investor, so do some research.”

Keep an eye on investment fees

Even if your investment is performing well, you may receive a nasty surprise if your investment fees are excessive. You do, however, need to weigh up returns against the risk of an asset manager getting it wrong, according to Walker, who recommends speaking to your adviser about both portfolio performance and fee structure.

For example, if your portfolio is only returning 5% a year and your investment fees are 2%, you’re paying for underperformance. In general, if your fees exceed 1.5%, you should ask whether this is justified, and what the implications will be.

Traci Porter, registered financial advisor at Efficient Wealth, says that fees and portfolio selection should be reviewed on an annual basis at the least.

“These can affect your long-term returns more than you realise,” she warns.

Tip: Your credit score has a direct impact on your financial future. Find out more at JustMoney.