The recent interest rate increase, albeit a moderate one, is good news for those with cash investments – who will now see a higher return on their savings. The repo rate jumped from 5.5% to 5.75% in July following the MPC meeting.

However, for those who are still paying off their homes, cars and other loans, this will once again shrink their disposable income. This is the second time that rates have climbed this year and many experts predict more hikes to come. The increased cost of debt coupled with inflation could lead to more South Africans cutting back on their retirement savings or putting their investment plans on hold to maintain their lifestyles.

Many of our clients have put enough money away to stop working. But to those who are still getting there: we would like to urge you to avoid using the interest rate jump as an excuse to decrease – or even cease – your retirement savings.

Try not to let the current economic climate distract you from your long-term goals. As you have no doubt heard many times before, retirement planning is a marathon and not a sprint. You are going to encounter many uphills along the way. If this is one of them, we advise you to muster up your stamina and do whatever you can to keep your retirement plan on track.

Whether you shop around for a better deal on your insurance or trade down your car, take a look at how you can adjust your budget and reduce your consumption. It may hurt in the short-term, but on the positive side your savings will benefit from the interest rate hikes and you’ll earn compound interest on top of that to further boost your nest egg. Over time, even a small retirement contribution will make a big difference to your quality of life in your golden years.

If you would like to make the rising interest rate environment work for you – give Warwick Wealth a call on 0800 50 50 50.

Comments are closed.