I'm 50 with no retirement savings. Is it too late?

By Lizelle Steyn

29 January 2024

Reader's question:

Tia asks: I’m self-employed and enjoy my work. I’ve never considered retirement or saving for years of “doing nothing”. It didn’t feel relevant to me. Lately, though, older family members – some not much older than me – have been experiencing health problems that made it difficult for them to continue working. This made me think about my own situation. Even though I’m fit and healthy, I’m thinking I should get a back-up plan and make sure I no longer need to work by age 65. How much would I need? I currently earn around R50k a month and have no debt. I also have about R200k in savings, to get me started.

Answer:

Dear Tia

I’m so happy to hear that you’ve found the type of work you enjoy and want to do for the rest of your life. The best investment you can make right now is to keep on paying attention to your health. Many of the illnesses that take people out of their jobs/businesses are related to lifestyle choices – physically and mentally. It sounds like you’ve been taking care of both.

Next to prioritising your health, it’s time to start looking after your long-term wealth. The first step would be to find the money to set aside for investing every month. Put aside time to reflect on what you value in life. Then have a look at your annual expenses. Where does your money go, and does this align with what’s important to you? Are there things that are becoming less important, such as Netflix or other subscriptions? Are there big items in your grocery bill that are not helping your health or your wallet? Which habits can you change, so you’re left with more money to save and invest every month? Too much house, or too much car, are normally the two main reasons South Africans battle to save, but only you will know what your unique situation is.

How much would you need? The Financial Regulator (FSCA) recommends that, once people start living off their capital, they shouldn’t draw down more than a certain % per year. That % depends on age and gender at “retirement” (I prefer the term “financial freedom”). You mention age 65 as your goal. In that case, you can draw no more than 5% or 1/20 of your capital every year. Put differently, you would need to save up 20x your annual expenses at age 65.

Is that possible? Yes. It's going to be tough but you are starting from a good base – no debt and a good income. And you have at least 15 years, preferably longer if health remains on your side. You will have to cut down your expenses dramatically, though, to free up enough money to save at least 40% of your current income. This is your chance to be creative. Or you could find ways to earn more money with your business, leaving you with more to invest. If you’re battling to see how, the right life/business coach could be invaluable in helping you see new ways to generate more income.

Reaching your goal is only possible if your savings grow at a rate well above inflation. To get this part right, It’s important that you invest in funds that take on some risk, that is, their value goes up and down with the market in the short term. You would therefore need some exposure to the stock market (equity funds), both SA and internationally. For maximum after-tax returns, it’s also important that these funds are “wrapped” in tax-beneficial products, specifically a tax-free savings account and a retirement annuity. The first is, as the name suggests, always tax-free, while a retirement annuity is tax-efficient (no tax now but income tax becomes payable once you convert it to an income annuity at age 65). When you e-file, make sure SARS knows that you are contributing to a retirement annuity every year, so you can enjoy the tax benefit of your contributions.

You mention you already have R200 000 in savings. This can act as your emergency fund; make sure you can readily access that money and keep it separate from your tax-free account and retirement annuity. A tax-free account is for the long term and should ideally never be used for emergencies.

“The measure of intelligence is the ability to change” - Albert Einstein

I commend you for changing your point of view to now seeing the merits of taking care of your future self as well as your current self. Changing spending habits will be hard at first, but fortunately neuroscientists now know that we can continue to form new neural pathways and change and learn throughout our lifetime. It really never is too late to make big changes.