How much you need to retire comfortably in South Africa
The amount you have to save to retire comfortably in South Africa can be worked out using three rules of thumb.
How much money you need to retire comfortably also depends largely on how old you are now. This is according to 10X Investment Consultant lead Andre Tuck.
“That number is the starting point, because it gives you an idea as to the time horizon you are working with. Clearly, the earlier you start, the more you are able to benefit from the compounding growth of your investments,” he explained.
If you are invested in the right product with a reputable manager, retirement planning comes down to a simple formula. “Your monthly contributions, plus consistency, plus time equals a better chance at a good return on your investment.”
Tuck cautioned, however, that there are no perfect formulas when it comes to retirement savings. “It’s worth remembering that none of these rules of thumb is guaranteed to help you retire well,” he said.
“They are based on what I’ve seen over the years and are offered as a sobering reminder to have realistic expectations for the income retirement investments can generate for you once you are no longer working.”
One of the most widely used guidelines is to multiply your final annual salary by 15. He explained that if, for example, your take-home pay is R25,000 a month in your final year of working, that would mean an annual salary of R300,000.
To maintain your lifestyle after retirement, you’ll need around 15 times your annual salary. In this case, roughly R4.5 million.
However, he warned that if you want to do things you didn’t get to do during your working years (such as travelling or taking up new hobbies) you should multiply your salary by 17, or even 20.
Another rule of thumb is to assume you need R1 million saved for every R5,000 you want to draw as income per month.
“If you want to draw a monthly pension of R25,000, you will need to have put away R5 million by the time you retire,” Tuck noted.
Start early, stay consistent, and be realistic
A simpler calculation is to multiply your expected monthly needs by 300. “So if you think you’ll need R25,000 per month, multiply that by 300 to arrive at R7.5 million,” he explained.
“This tends to give a higher number than the other formulas, which is a good thing—it gives you a bigger safety net.”
These numbers can be intimidating, but Tuck stressed that the important thing is to start. “Having tried one of those calculations, you’re probably thinking that you should ramp up your savings, and you should. As a country, we don’t save enough.”
The South African Reserve Bank (SARB) has shown that the average South African spends 70% of their take-home pay on servicing debt.
“Our own research in the recently published 10X Retirement Reality Report found that 71% of respondents had no retirement savings plan at all, or just a vague idea of one,” Tuck added.
“Don’t wait until the end of the month to save or invest. As soon as your salary comes in, invest a portion for your retirement. That way, you can spend what’s left in good conscience. This is a small change that can have massive, life-altering consequences.”
Tuck also advised being mindful of how you invest. “Have the correct asset allocation within your investment portfolio. Being diversified in all asset classes throughout the retirement journey will ensure the protection of your capital.”
At the same time, be cautious about costs. “Don’t pay high fees. Do your homework on your investment management fees, because they compound against you the longer you are invested. Do not fund someone else’s retirement, look after your own needs.”
“Start early, stay consistent, and be realistic about the lifestyle you want to maintain after you stop working. The future you will thank the present you,” added Tuck.
Loading ...