The Black Tax Burden

“Only when the tide goes out do you discover who’s been swimming naked”. This is one of Warren Buffet’s quotes that speak to stock market investors. Generally, when there is a bull-run or markets are going up, no one really sees any problems in a particular investment portfolio. However, when the markets fall, portfolios with poor investments can result in severe losses.

In our view, the same can also be said of retirement planning. One of the main financial strains that black professionals are currently facing in this country is the burden of having to support extended families, subsidise relatives who are less privileged and also take care of their parents that are past retirement age. This is now popularly referred to as “black tax”. The hard truth however is that if everyone had saved or planned for retirement properly, the burden would have been reduced.

Some of the common  excuses people have when it comes to retirement plans are (i) I have heard that retirement annuities are a waste of money, (ii) I have lots of time before I need to worry about retiring  and (iii) I have a good retirement fund at work.

In South Africa for example, it is estimated that 16% of retired people are dependent on a state pension, 31% keep working to sustain themselves, 47% remain dependent on family and friends to be able to live and only 6% retire comfortably, independent of others. These statistics are more shocking in developing nations such as Zimbabwe that have gone through hyperinflation and currency issues. In a nutshell, there is clear evidence of poor retirement planning.

So why does this happen?

  1. Many people don’t plan for their retirement
  2. People don’t keep an eye on their retirement plan
  3. People don’t have clear goals that they want to achieve
  4. People wait too long before they start to save
  5. People put all their eggs in 1 basket
  6. People can’t save because they live beyond their means
  7. People don’t have the proper knowledge to make an informed decision

To retire comfortably one would require roughly 15 times of his or her annual salary (in a stable currency). This would come to approximately USD540,000 for a professional earning an annual salary of USD36,000 (USD3,000 per month). The key question therefore is; how much do you have in your retirement fund?  Our advice is; start early, save as much as possible, do not rely on your company pension (it is never enough) and most importantly, consult the experts. Also remember that you are not always just saving for retirement as illustrated hereunder;

Life Stages- Need for short/medium/long-term savings

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