If you were offered the chance to turn N$10 into N$100, there’s a good chance you’d be interested. Then, if you were told you were putting this money into an official scheme where the employer also adds a couple of dollars, so you in turn only needed to put in N$8, that would likely make the offer even more attractive.
Wondering what this scheme is? It’s a pension. Interested? You should be. It could be one of the best financial decisions you ever make.
Contrary to some believes, a pension only has three main objectives; i.e.:
1) Saving for your retirement;
2) Saving in case you become disabled and are no longer able to work; and
3) Saving for your dependants in case you pass on.
Saving for your pension is easier than you may think.
It’s not some complicated and boring process that should be put off – but a savings scheme with great tax advantages. If you do not belong to a pension scheme provided by your employer, you can still save towards your retirement by taking out an annuity through an insurance company. Annuity savings have a tax benefit as the Government is trying to encourage people to save towards their retirement as this will in future lessen the burden of the State to provide State Grants. It is also important that when you change jobs, you do not take your pension benefits to spend but rather transfer it to your new employer.
Why you need a pension
Why should you save for your future? As much as you may feel nothing bad would ever happen to you or that you will forever be young, there is going to come a time when you can’t work anymore and therefore can’t earn an income. That may seem a long way off but the sooner you start saving for the future, the sooner you will ensure it’s a happy and enjoyable one, rather than a miserable existence. And if you actually sat down and did the sums of how much you need to enjoy a comfortable retirement you may be quite shocked; hence the need to start saving early.
Start saving for your retirement as early as possible, even if it is a relatively small amount. Supposedly, you can save just N$10 when you’re aged 25, and this pension investment could grow to N$20 at age 32, then N$40 at age 39, N$80 at age 46 turning into N$160 at age 52 and N$320 at age 60. If you delay starting your pension until age 39, your N$10 will only turn into N$80, which neatly demonstrates the huge benefit of starting earlier.
These figures are only rough estimates as pension monies can be invested in a wide variety of ways and with all investments there is a risk – as anyone with cash in shares or stock markets will have noticed in recent years. So it’s important to understand where you can put your money, and how you can monitor how well it is doing.
Keep an eye on your pension investments
Take the time to think about where your money is invested. You may find this worrisome so don’t be afraid to pick the default fund (if you do not exercise a specific option as provided, the selection would be made for you automatically) offered by your pension firm to start with. But the more interest you take in your pension, the more you are likely to get out of it.
As seasoned investors know, the longer time-frame you’ve invested, the great-er the risk you can afford to take, if things do go wrong; hence you have plenty of time to recover. It is therefore advisable to start saving for your retirement as early as you possibly can.
The riskiest investment often offer the best potential rewards so it’s a case of sitting down and deciding how much risk you’re comfortable with. As you get older, it’s wiser to take fewer risks with your savings as you want to know the cash will be there when you need it.
The final key message thus is: If your employer offers you a contribution into your pension, take it, even if it means having to put money in yourself. This is free money, make use of this saving opportunity.