If you have just started out in your first job, you probably aren’t thinking about retirement – that’s about 40 years away! But you probably already have plans for how you would like to retire. Maybe you want to travel the world or maybe you’d like to spend your free time socialising with friends and family in your own home?

Retirement might seem like a long way off but before you know it you’ll be nearing the end of your career and you’ll have to start thinking about how you will make your retirement dreams a reality. But for many millions of South Africans who didn’t plan for their retirement, they have to work out how to survive without an income.

Although most people only start saving for their retirement in their late 20s or 30s, research shows that the earlier you start the more money you will have saved, making it easier to live the lifestyle you’d like.

Retirement plans are long-term saving options, that means that you invest your money and then leave it for many years to grow. The longer you are investing and saving the more you will have on retirement, thanks to compound interest.

Essentially compound interest means that if you save a little for a long time, you will be better off than a person who starts later and saves more – as your money has a longer period to benefit from compound interest.

Most financial planners advise that you save 15% of your salary from the age of 25 to have enough to live comfortably in retirement. If you delay saving you need to increase the percentage you save to ensure you have enough to match your income on retirement.

10X Investments suggests that the percentage of savings needs to increase to 40% of your salary if you only start saving in your 40s, showing the value of starting early.

You can read more about corporate retirement funds in their free e-book called The South African guide to corporate retirement funds.

When it comes to planning for your retirement, there are lots of different products you can consider depending on your situation and requirements. Broadly there are 4 options:

  1. Pension funds: are typically arranged by companies for their employees. With a pension fund you receive a third of your total saved in one payment on retirement and the balance is paid on a monthly basis as a pension.
  2. Provident funds: also typically arranged by companies for their employees. With a provident fund you receive the full amount saved in one lump sum when you retire.
  3. Retirement annuities: these are normally arranged by an individual when their company doesn’t provide a pension or provident fund. They save each month themselves and when they retire they receive a third of the total saved in one payment and the balance is paid on a monthly basis as an annuity.
  4. Preservation fund: these are funds set up to keep your retirement savings in tact when you move jobs or are retrenched. You can transfer the full fund into a preservation fund tax free.

There are many different retirement plans and it can be very overwhelming finding the right product for you. That’s why it is a good idea to consult with a financial planner – they are experts in identifying the best retirement option for you and your needs and can guide you through the process.