Alexander Forbes notes that South Africa has one of the worst savings rates in the world of just 15.4% of gross domestic product (GDP) – meaning it has more of a debt culture than a savings one.
The group told journalists at its head office in Sandton on Tuesday 6 November, that while the industry has won several battles, it continues to lose a few in getting people to save for retirement.
In South Africa, the firm says that approximately 5% of people retire with enough income to be comfortable. The aim of most retirees is to receive about 75% a year of their final annual salary when they retire.
The rule of thumb is that you should consistently save between 15% and 20% of your monthly salary while you are aged 20 to 60 to retire comfortably.
The below graph shows the multiple of salary that a member needs to have saved to ensure that they are on track to get a reasonable replacement ratio at retirement.
For example, a 40 year old member would need to already have saved just over three times the current annual salary to be on track for a 75% replacement ratio at retirement, Alexander Forbes said. “This is a very useful rule of thumb for members at all ages to follow,” it said.
Deciding to retire at the age of 65 rather than the age of 55, can almost double the replacement ratio that a member can achieve.
The graph below shows the impact of retiring at various ages for a new member aged 25 contributing at 11.75% of salary.