A Millennial's Guide To Setting Up A Retirement Fund

It might be decades away, but one day youre going to retire and we bet you dont want to be broke then. This is a real and scary possibility in South Africa today, if you dont plan for your golden years. Financial experts estimate that less than 10% of us will be able to maintain our current standard of living after we retire. As it is, 51% of South African retirees struggle to make ends meet, and a third cant cover their medical expenses, according to research from the Sanlam Benchmark Survey 2018.

- Zongile Nhlapo

As a Millennial, you’re most at risk

Forty-five percent of Millennials in South Africa were found to have neither a pension fund nor a retirement annuity in place, according to the 2017 Old Mutual Savings and Investment Monitor. ‘Millennials are starting to save for retirement too late, are saving too little or nothing at all. They see retirement as a very distant goal,’ says John Manyike, head of financial education at Old Mutual.

Another survey by 10X Investments, which looked at the saving habits of about 2 200 South African Millennials, also revealed that this group was not saving enough, with only about 35% investing for the long term. ‘The reality is that if you fail to save enough, you may become a burden to your family or be forced to live off a government pension of just R1 700 per month when you retire,’ says Manyike. ‘These choices are not attractive, especially in a tough economic climate.’

The good news is, with some planning and discipline, you can retire comfortably. The main vehicles for saving for a more secure retirement in South Africa are pension funds, provident funds and retirement annuities – all governed by the Pension Funds Act. Their purpose is to provide you with an income on retirement.

If you work full-time, check whether your company offers access to a pension or provident fund. Pension and provident funds are so-called workplace funds – so if you join a company that offers one or both, you join either fund as a condition of employment. Your contribution to the fund is included in your cost to company as a fringe benefit.

With a pension fund, when you retire, you may take up to a maximum of one-third of your savings in a cash lump sum. The remaining two-thirds of your savings will be issued to you in the form of a monthly pension for the rest of your life.