Sandwich generation must prioritise retirement

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Recent polls and research have once again confirmed that the so-called sandwich generation (people who not only support children, but also parents and other older dependents) is increasing every year, and underlines the importance of starting to make provisions for retirement at an early stage.

Statistics show that only about 6% of South Africans will one day be able to retire comfortably while the rest will depend on their children, the state or other possible sources of income.

“A generation that in effect has to provide for two financially dependent generations can easily result in them not making enough provision for their own retirement due to the financial pressure to support their children and parents. Moreover, people are living longer,” says Thys van Zyl, head of product development at Everest Wealth. “However, this vicious cycle can be broken by planning for retirement early on and being smart with investments for retirement.”

It is essential to have a clear scope of your financial situation. “This includes all your debts and savings as well as all the savings vehicles you already have in place for retirement. Determine whether you are contributing to a pension fund, provident fund or retirement annuity or more than one.

“The next step is to determine with the help of a financial planner how much you will need for retirement as people often underestimate how much they need to retire with. This is determined taking into account your personal circumstances, the age at which you plan to retire and the lifestyle you will want to maintain in retirement. It is also important to know what amounts will be immediately available to you upon retirement, what monthly income you will get and what tax implications there are.”

The international asset manager Allianz Group found in its 2023 Global Pension Report that South Africa has some of the poorest pensioners. Van Zyl says this leads to growing concern for both retirees and active workers and it is important that people know what options are available to them when it comes to retirement. “Financial advisors can help people with the various options in order to prioritise retirement savings and set a comprehensive financial plan to achieve it.”

Changes to legislation regarding retirement must also be kept in mind. “The proposed two-pot pension fund system could possibly be implemented as early as March next year. The option to withdraw retirement money may bring immediate much-needed relief to many in times of cash crunch, but it will have to be done with great caution in terms of its long-term impact on retirement savings.

“If money is withdrawn on a regular basis, this will result in this worker having much less money saved over a long period of time than someone who has not touched their money at all. That money that was withdrawn could have grown a lot over the specific period and it can make a significant difference in the amount that is finally available for retirement. Therefore, regularly withdrawing your savings will have a compounding impact over time and is definitely not something that one should do regularly.”

Van Zyl also points out that workers who withdraw money from their retirement fund will most likely not be in a position to put the withdrawn money back so that it can grow further.

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