In light of the abysmal savings rate in the country, it has become increasingly crucial for South Africans to start planning for retirement, with experts recommending saving at least ten times your annual salary to ensure a comfortable and independent future.
According to the latest Baseline survey on financial literacy in South Africa, only 46% of adults tend to live for today rather than worry about providing for their future, while 44% stated that they have not been actively saving, and a third of South Africans have no retirement plan.
“As the National Treasury, we are worried about the statistics for people who expect to rely on government pensions because, in the absence of growth, we do not want to end up with a society that relies on government handouts as opposed to saving money for their own future,” said Acting Tax and Financial Sector Policy Division Deputy Director-General, Mmakgoshi Lekhethe.
This is concerning, considering saving for retirement is of utmost importance. As the population ages and life expectancy increases, securing financial stability during one’s golden years becomes even more crucial.
With the current economic climate and uncertainty around pension funds, relying solely on state benefits may not be sufficient. Individuals can create a financial safety net by saving for retirement, ensuring a comfortable and independent future.
Retirement savings provide a financial safety net, ensuring a comfortable and independent future, said Chief Investment Officer at PSG Wealth, Adriaan Pask.
“The financial decisions we make today will significantly impact our security and our standard of living given the current economic condition that people find themselves in, and therefore saving and being money smart is a strong foundation towards securing your future,” Lekhethe added.
How much you need to save
According to Fidelity Investments, in 2023, the rule of thumb is to save ten times your income if you want to retire by age 65 and maintain your current lifestyle.
This amount can be adjusted based on when you want to retire – earlier or later.
For instance, individuals who plan to retire at 60 must save more to make up for five extra years without any income. On the other hand, those who retire at 70 might not require the entire amount of 10 times their income, as they would have worked for an additional three years and presumably have fewer years remaining to spend their savings.
Achieving Fidelity’s retirement savings guidelines can seem daunting, but it becomes more manageable if you start saving early and have many years to reach your goal.
To help you plan, Fidelity recommends specific savings milestones based on age. By hitting these milestones, you will have saved enough money to maintain your current lifestyle even after retiring without downsizing or reducing your spending.
Here’s how much Fidelity Investments suggests you should have saved:
- Savings by age 30 – the equivalent of your annual salary saved. If you earn R240,000 per year, by your 30th birthday, you should have R240,000 saved.
- Savings by age 40 – three times your income (R720,000);
- Savings by age 50 – six times your income (R1.44 million);
- Savings by age 60 – eight times your income (R1.92 million); and
- Savings by age 65 – ten times your income (R2.4 million).
It must be noted that the above savings guidelines include anything you have in a retirement account and your investments in things like index funds. Remember that this savings amount depends on your lifestyle and income.
“While personal savings goals can differ between individuals, these milestones can help you stay on track or kick it into gear if you’re nowhere close,” said the financial firm.