5 Ways for women to kick-start their retirement savings

BY DHIVANA RAJGOPAUL

Various factors and individual circumstances affect how women invest money for later years compared to men

THE WAY women and men spend their money before and after retirement is different and, therefore, so is their thinking about retirement.

Women should start saving towards retirement as soon they start working, even if they work as a part-time student, says Kerry Sutherland, a certified financial planner at Alexforbes.

“Should you wish to receive 75% of your final salary at age 60, you have to start saving 19.1% of your salary from the age of 20. Should you start at age 40, this savings requirement increases to 49% of your salary.

“It is difficult to apportion one’s monthly budget between debt repayments, life insurance and living expenses, but the earlier you start, even if this is a small percentage, it will have more than 40 years to compound, and this has a substantial effect on growth over time.”

There are many factors that have an impact on the retirement plans of women, including:

✦ On average, women live five years longer than men. This means that women need to save more money for a longer retirement, with more years of expenses to pay.

✦ Women taking time off work to start a family or have a baby could reduce the number of years they contribute to their retirement savings overall.

✦ Women can be too conservative with their portfolio choices in the long term.

✦ The salary gap between men and women means less income is available to save for retirement.

5 important things to note to help women start saving for retirement

1 Start early

Hildegard Wilson, a product solution design specialist at Momentum Investments, says women should start saving for retirement as early as possible.

“Even if it is a small amount every month, over time, this can become a significant sum of money.”

Sutherland adds: “You can make use of a tax-free savings account. You can contribute up to R36 000 a year. It is advantageous to start these as early as you can, as they have a lifetime contribution limit of R500 000, but all growth in these funds is tax-free.”

2 Don’t cash out your retirement when changing jobs

Should women choose to quit their jobs or change employers, they should not cash out their company retirement fund.

Rather, she says, they should leave this in the fund as a paidup member or transfer to a preservation fund or retirement annuity, where it can continue to grow. “If possible you should continue to save while you are staying home. Your family budget during this period should include savings towards your retirement.”

Echoing this, Wilson says one of the biggest reasons for people not having enough retirement savings includes the lack of preserving retirement savings when changing jobs and not saving towards retirement.

3 Speak to a financial adviser

A financial adviser can ensure that a woman’s investment portfolio in her retirement fund or savings matches her risk profile and the strategies she wishes to follow at retirement.

Wilson also notes that retirement planning is “very personal”.

“Just as women’s retirement planning differs from men’s, each woman’s situation is unique. Therefore, it is important to seek advice from a financial adviser who can look at your personal retirement plan and help you on your journey to success.”

4 Don’t draw from your retirement fund too early

She says the goal is to retire as late as possible because the longer women delay drawing an income from their retirement savings, the greater the chance they will be able to cover their expenses throughout retirement.

“This does not mean you need to stay working for as long as possible but it could also mean turning a hobby into a source of an additional income to delay drawing from your retirement fund.”

5 Manage taxable income

Sutherland says women who have a taxable annual income should make use of retirement fund vehicles for savings either through their company retirement fund or a private retirement annuity.

“Contributions into these funds are tax-deductible (within certain limits) and, in addition, there is no capital gains tax, dividends tax or tax on interest within the retirement fund.

“This means it compounds more over time compared to, for example, a unit trust where these taxes are deducted on growth in the product.”

Retirement planning is personal, therefore women should seek advice from a financial adviser who can help create a retirement plan that suits them.