The golden years - the time in your life when you no longer have to wake up, get dressed, and clock in at work. Instead, you spend your day at leisure and finally do the things you never had time for. But how many of us have given any thought to what it would mean to put a proper retirement plan in place and retire comfortably? The earlier you start thinking about what you want to do after you stop working and how you want to financially achieve this, the better. Don’t fret if you haven’t paid much attention to this milestone. It’s never too late to start saving for your retirement but keep in mind, starting today is still better than starting tomorrow. 

So where do you start? The first step is to think about your retirement goals and what it will take to meet them. Putting a formal retirement plan in place will let you save money to provide for your needs when you stop working and no longer earn a salary. When you retire, your savings are invested to give you an income in retirement. Depending on the retirement plan you chose, there are certain rules and requirements that tell you what you can do with this money.  

So, what’s a retirement plan? 

You use a retirement plan to save money throughout your working life, to provide for your needs when you stop working. When you retire, this money is invested to give you an income in retirement. There are certain rules and requirements that tell you what you can do with this money, depending on the retirement plan you chose.  

The earlier you start saving money in a retirement plan in South Africa, the more you’ll thank yourself in the future. Why? Due to medical advances, people are living until much older ages than they did a few decades ago. During your retirement you’ll most likely not earn a salary, but you’ll still have ongoing needs and expenses. By starting to save early, your money will have more time to grow uninterrupted. You’ll benefit from compound interest (that’s earning interest on interest) and this is where the real magic of return on investment happens. Starting early will also allow you to start with smaller amounts which you can increase every year as your disposable income allows.

Everybody’s circumstances and needs are different. Different retirement plans offer different retirement plan benefits. It’s important that you get the correct guidance from a financial adviser that specialises in retirement plans. Your financial adviser will consider all the important factors to help you determine what plan will work the hardest for you and give you the best retirement benefits. 

There are many channels you can use to save for retirement. Dedicated retirement plans have the benefit of tax-free growth on your savings, and you also receive tax deductions from your contributions in your annual tax returns. 

Some retirement plans in South Africa are set up by your employer with contributions coming from your salary. The retirement plan options you have is dependent on your employer and the measures which they have put in place to save towards your retirement. To help you understand the different retirement plan options, benefits, and requirements, we’ve put together this retirement planning guide that you can refer to when considering your retirement plan: 

What’s the difference between a pension fund a provident fund and a retirement annuity? 

• PENSION FUND: A pension fund is used to save for retirement and receives frequent contributions (usually monthly) from you and your employer. At retirement, you can access up to 1/3rd of your savings in cash, but the remaining 2/3rds must be used to buy an income plan to ensure you have an income when you retire.

• PROVIDENT FUND: A provident fund is similar to a pension fund, with the difference that when you resign or retire, you can take the entire savings amount as cash if you want. You don't need to purchase an income plan, but you will be taxed on the cash payout based on the lump sum tax table. Some of the rules regarding provident funds have changed since 1 March 2021 and a portion of your provident fund savings might also need to be used to buy an income plan, in the same way as you would with a pension fund. 

If you are working for yourself or if you are looking for a way to save for retirement independently from your employer, you can consider a retirement annuity. A Metropolitan Retirement Plan is similar to a pension fund. At retirement, you can access up to 1/3rd of your savings in cash, but the remaining 2/3rds must be used to buy an income plan to ensure you have an income when you retire. The only difference is that your contributions are not linked to an employer. 

How to get started 

A Metropolitan financial adviser will complete a financial needs analysis with you. This will help you draw up a financial plan that will enable you to reach your financial life goals. In this case, your Metropolitan financial adviser will act as your retirement plan adviser and will help you determine which retirement plan will offer you the best retirement benefits. Once you’re reviewed your options and agreed on the retirement plan that will best meet your needs, they will then help you complete the application process. 

If you already have a Metropolitan financial adviser: 

• Contact your financial adviser and ask them to set up a time to tell you more about Metropolitan’s retirement plans 

If you don’t have a Metropolitan financial adviser yet: 

• Use our chatbot feature and a qualified financial adviser will contact you 
• Call the Service Centre on 0860 724 724 and ask the consultant to arrange for a financial adviser to contact you 
• Contact or visit your nearest Metropolitan branch and ask to speak to a financial adviser that can tell you more about Metropolitan’s retirement plans. 

Saving towards retirement requires discipline and dedication. Some may get discouraged because retirement could still be a long time away. Others feel that there will always be time to catch up. But think about it this way – by giving up a small amount of your financial freedom now, and using it to save towards your retirement, you’re setting up your older, future self to enjoy a stress-free retirement. Every time you contribute towards your retirement savings, remind yourself of this goal and how much you will appreciate this when you are older. As an added benefit, there are certain tax advantages to contributing towards a dedicated retirement plan, which gives you more bang for your buck in the long run. 

Deciding how much you need to save towards retirement depends on various factors and needs to be done alongside an experienced financial adviser. 

• First, you need to determine the amount of income that will allow you to maintain your standard of living. In other words, which monthly income will allow you to meet your monthly expenses. If you’re able to make ends meet now, then you could simply inflate your monthly income by inflation every year until you plan to retire. 
• Next, you’ll need to determine the investment amount which will allow you to “buy” this level of income. Your adviser can assist you with a quote from various retirement income plans, also known as an annuity. Keep in mind that interest rates and inflation will affect the resulting income levels over time. 
• Having estimated the amount of money you’ll need to buy a certain income level; you need to determine the amount you need to save regularly to eventually achieve this goal. Remember to consider all other retirement plans you already own. 
• If you need to save more than what you’re currently saving, consider investing in a Metropolitan Retirement Plan. If you cannot afford to save the entire amount, start with a more affordable amount and work towards increasing your monthly savings over time. 

How to plan your retirement portfolio wisely? 

• Saving for retirement is very important and we suggest doing it with the help of a financial adviser who can act as your retirement plan consultant. Your adviser will assess your risk profile, the time you have until retirement, and your retirement goals to determine the right investment portfolio for you. There are many retirement plans on offer, however, it’s advisable to invest your retirement savings with a reputable insurer, like Metropolitan. 
• Your investment portfolio is subject to Regulation 28 of the Pension Funds Act which limits the extent to which retirement investments can be invested in certain asset classes.