The importance of prioritising your retirement in 2014

As a start, you must quantify your retirement end-goal: how much money will you need – and how much money do you need to set aside – to give you a comfortable retirement. Track your progress at least once a year to see where you stand relative to your goal.

You can do this with the help of a quality retirement calculator (using accurate inputs and assumptions). This will tell you where you stand relative to your goal, and what you can do to improve your savings outcome.

You should endeavour to save at least 15% of your monthly salary for approximately 40 years, in order to build a sufficient retirement pot.

If you have started saving later in life, you may have to increase your contribution rate to make up for lost time. Equally important, educate yourself on the key success factors of retirement saving in order to avoid the common mistakes, such as paying high fees or investing too conservatively for your age.

Do you know how much you are paying away in fees – for advice, administration and investment management?

Paying total fees above 1% pa of your investment balance greatly diminishes the likelihood you will achieve your retirement goal. So, establish the amount you pay on investment fees every month. The higher the rate, the less you will get out of your savings when you retire. Appreciate that if save 1% in fees per annum over 40 years, your final pension amount would increase by about 30%.

No matter how smart your active retirement fund manager might be, empirically they only have a 20% chance of beating the market return over the long term. By avoiding actively managed funds and using index funds instead, you are able to earn the average market return – no more, but more importantly, also no less.

Invest strategically rather than tactically. Maintaining your age-appropriate asset mix and adhering to the index return protects you from making emotional decisions based on past performance or current market trends. Over time, you will be rewarded with a superior investment returns (after fees), with less risk relative to an active strategy. Coupled with low investment fees, you stand to gain as much as 60% more over an investment period of 40 years.

Do not be afraid to ask your fund manager about any costs that could potentially be reducing your retirement returns. If they have your interests at heart, they will disclose this willingly.

Steven Nathan

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