Retirement is usually the last thing on the mind of anyone under 35. Still, experts warn that this lack of planning may be to the financial detriment of the millennial generation.<\/p>\n
The average age of retirement in South Africa is 60, but statistics from the latest 10X Retirement Reality Report indicate that only 6% of South African\u2019s are on track for a decent retirement by that age.<\/p>\n
\u201cFor years, financial planners and other financial institutions have tried to convince young people that they should be putting as much as 20% of their salary aside each month towards their retirement. Saving for retirement should start in your twenties,\u201d said Gus Van Der Spek, developer of upmarket retirement village Wytham Estate.<\/p>\n
\u201cUnfortunately, retirement may seem like an abstract concept at that age, and Covid-19 has further exacerbated the situation,\u201d he said.<\/p>\n
Why aren\u2019t we looking ahead?<\/strong><\/p>\n A large portion of the country is barely making ends meet, with no income to put aside as savings. While this is the primary contributor to the low percentage of South Africans on track for a decent retirement, other more subtle factors contribute to why those who can afford to invest in their future choose not to do so.<\/p>\n \u201cWe are living in a time of deep uncertainty \u2013 made even worse by the impact of the Covid-19 pandemic,\u201d said Van Der Spek. \u201cMany young people are struggling to plan even a year in advance given the current climate \u2013 let alone 40 years.”<\/p>\n \u201cUnfortunately, ageing is inevitable, and it is hugely important to have a plan in place when the time comes, especially if you want to spend your golden years in comfort.\u201d<\/p>\n How much should one be putting aside?<\/strong><\/p>\n Van Der Spek said that while many financial planners advise on putting a specific percentage aside each month, how much one chooses to save should be informed by future lifestyle considerations rather than by a one-size-fits-all approach.<\/p>\n \u201cIf we\u2019re talking specifically about the costs of retirement accommodations or housing, there are a huge range of options available \u2013 and all at different price points. Before you start saving, it helps to have a realistic idea of the kind of lifestyle you expect to live once you retire and what this will cost so that you can budget accordingly,\u201d he said.<\/p>\n For those wondering what the difference is between a Retirement Annuity (RA) and a Pension Fund, Van Der Spek said: \u201cAn RA is taken out by an individual whereas a pension fund is provided by an employer and is tied to your employment status.\u201d<\/p>\n The general rule of thumb for a comfortable retirement is 15%<\/strong>. \u201c15% of your salary should be put aside for your entire working career of around 40 years. For those wanting to retire in luxury, 20%-plus is advised. Also, bear in mind that what R1 is worth now will differ by the time that you retire,\u201d<\/p>\n Van Der Spek shares advice given by financial planners saying, \u201cmultiply your needs by 300. Simply put, if you currently live on R50,000 per month, multiply this by 300 to determine what you will need to maintain a luxury lifestyle post the age of 60<\/strong>.\u201d<\/p>\n Van Der Spek’s comments dovetail retirement expert Andre Tuck,\u00a0 a senior Investment consultant at 10X Investments.<\/p>\n Tuck also mentions three old school ways to \u2018guesstimate\u2019 your retirement goal:<\/p>\n 1: Multiply your final annual salary by 15<\/strong><\/p>\n \u201cLet\u2019s say your take-home pay is R25,000 a month in your final year of working, giving you an annual salary of R300,000,\u201d said Tuck. \u201cTo maintain your lifestyle after retirement, you\u2019ll need around 15 times your annual salary, so 15 x R300,000, meaning a lump sum of roughly R4.5 million,\u201d he said.<\/p>\n He added, however, that if you are hoping to do things you didn\u2019t do during your working years, for example, travel, you should rather multiply your final salary by 17, or even 20.<\/p>\n 2: Save R1-million for every R5,000 you want to draw down as a pension every month<\/strong><\/p>\n You can also get a rough idea of how much money you\u2019ll need to have saved at retirement by assuming that you will need R1 million invested in an annuity for every R5,000 you want to draw a month once you\u2019re retired. So, if you want to draw a monthly pension of R25,000 a month, you will need to have squirrelled away R5 million by the time you retire.<\/p>\n 3: Multiply your monthly needs by 300<\/strong><\/p>\n One of the simplest calculations is to multiply what you think you\u2019ll need per month (say R25,000) by 300 to determine the lump sum you will need to have saved (R7.5 million in our example). This option gives a slightly higher figure than the other two options, which is a good thing, says Tuck.<\/p>\n \u201cThe more money you have available to invest once you retire, the better your lifestyle will be and the more likely you will be to withstand the impact of unexpected events, such as the current pandemic,\u201d he said.<\/p>\n \u201cBesides, I have yet to hear someone say they are worried they will have too much money in retirement,\u201d Tuck said.<\/p>\n Van Der Spek said that maintaining one\u2019s lifestyle should be of the utmost importance in their golden years. \u201cPeople are living longer, so your retirement savings should be underpinned by the quality of life that you want during retirement,\u201d<\/p>\n Easy retirement tips for millennials <\/strong><\/p>\n
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