Yes, it is really important we understand that we need to save for the future. One day, someday, we will need to rely on our own investments to maintain our lifestyles. It’s just the way the world works. We spend most of our lives working to get through the demanding cost of living which increases systematically into the future. At some point, your retirement savings will be all that you have to rely on for the rest of your life.

There are many ways to save for your financial future. Many would have you believe that you should invest in a retirement annuity in the first instance as it is the investment of choice for retirement. Not necessarily. Here are some reasons why:

You can only access your RA at 55      

Young investors have to provide for many financial events during their working careers – getting married, buying and house and car, having children and educating them. A retirement annuity won’t help you along the way. The access to funds is very limited to death or only a third in cash when you get to 55. So, when starting out on your savings program the focus should be on the accessibility of your funds. More appropriate options are money market accounts and unit trusts which can be accessed at any time when needed.

Your tax rate is low  

One great benefit of a retirement annuity is that you claim back the contributions made in every tax year. The money you get back is relative to your tax rate. If you pay 45% tax then you get 45 cents back for every rand invested. However, if you don’t pay tax because your income is below the tax threshold of R78 150 then there is no benefit to investing in a retirement annuity. As there is a tax applied to the retirement annuity at retirement it is probably better to invest in other alternatives until your tax rate moves up the tax scale.

Your cost of debt is more than 30%

If you are spending more than 30% of your income on paying off debts then you need to get this area of your financial planning under control before locking up your savings in a retirement annuity. The cost of debt is probably way higher than the returns you get in a retirement annuity. So in the short term to medium term rather work down your debt and get it under control before committing to a long-term retirement annuity. There is an argument that compound interest will catch up over time but there is a practical reason to pay off your debt sooner than later. The cost of the debt is high and if you get into financial trouble you could lose your asset. So ensure that you are well on top of debt before embarking on a long-term retirement annuity.

Retirement annuities have a place and they are not necessarily first as an investment.

Yes, we are in a technical recession meaning that our net growth on products and services has contracted for two consecutive quarters (-2,6% and -0,7%).

Increased taxes was not the solution

Personally, I see the big problem being the increase in VAT and the cost of fuel which has drastically affected the battered average household. Remember how the budget was delivered by our outgoing Minister of Finance who left shortly afterwards leaving us hung dry with increases in VAT, the fuel levy and so-called ‘sin taxes’. Little wonder we now are struggling as an economy.

So what about your personal recession?

If you evaluate your personal finances how is your growth doing? A worthwhile measurement is your balance sheet measuring the market value of your assets (everything your own) over your liabilities (everything you owe). The difference, which is your net worth, should be growing at a higher rate than the prevailing rate of inflation which is currently 5,2%. 

Measuring this quarter on the quarter will give you a clear indication of whether you are heading for a personal recession or keeping abreast of the headwinds of the rise in the cost of living. 

Prevention is far better than cure

In the knowledge that your financial position is contracting, you should make drastic changes before you reach the inevitable. After all, it is easier to change your sails before a storm than in one. You will find opportunities by reducing expenditure relative to your income. The same applies to our economy. To improve our GDP and get out of a recession we have to produce more and spend less. 

All we can do is work with the things we can control. So have a hard and honest look at where your money is going. It should be allocating more to growth assets than debt. Hard times are ahead so the sooner you get a grip on things the better. Again, increasing taxes was not the route to improving our economy. It has proved to be damaging. Now we have to live with it and make a plan.