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<\/figure>\n\n\n\nMotloung explained that another common method for determining how much to save for retirement is the \u201creplacement ratio\u201d.<\/p>\n\n\n\n
This approach considers what portion of your current income you\u2019ll need in retirement based on anticipated changes in lifestyle and expenses. <\/p>\n\n\n\n
For instance, by the time you retire, some expenses \u2013 like a mortgage \u2013 may be fully paid off, and your children will likely be financially independent. <\/p>\n\n\n\n
However, healthcare costs often increase with age, meaning some retirement funds may need to be redirected to cover those needs.<\/p>\n\n\n\n
Generally, the goal is to replace around 80% of your pre-retirement income to maintain a similar standard of living. <\/p>\n\n\n\n
Planners calculate this by considering your current income and factoring in inflation, which changes the purchasing power of money over time. <\/p>\n\n\n\n
Typically, inflation is around 3% to 4%, but for retirement planning, it\u2019s safer to estimate it at 5%. <\/p>\n\n\n\n
According to Motloung, it is fair to assume that over 20 years, the cost of things will likely double, so it is advisable to work from the worst-case scenario. <\/p>\n\n\n\n
Planners will also ask when you plan to retire and assume you\u2019ll need income for about 20 years post-retirement.<\/p>\n\n\n\n
Once your retirement target is set, they assess how much you\u2019re currently saving and estimate if that aligns with your goal. <\/p>\n\n\n\n
Motloung said that this number is very daunting for many people who feel they will never be able to save that much. This is especially true for a country like South Africa, which doesn\u2019t have a great savings culture. <\/p>\n\n\n\n Robson explained that while retirement planning will look different for everyone depending on their goals, it is generally advised to pay off debt beforehand. <\/p>\n\n\n\n \u201cCreating short-term stability for yourself as part of that financial planning or investment planning journey is really important, and that really does set you up for success in your retirement,\u201d she said<\/p>\n\n\n\n \u201cDebt is obviously something that you would look to pay down as quickly as possible so you\u2019re not having to pay that off when you\u2019re in retirement.\u201d<\/p>\n\n\n\n She added that investing in your retirement can also mean making some lifestyle sacrifices in the short term to set yourself up with the lifestyle you want after you retire. <\/p>\n\n\n\n While many people think they will start contributing more to their retirement savings once their pay increases, this isn\u2019t usually the case.<\/p>\n\n\n\n \u201cOften what we find is that it\u2019s actually easier to make lifestyle adjustments than earning more,\u201d Motloung said.<\/p>\n\n\n\n \u201cWhat we generally find if you\u2019re able to make that lifestyle adjustment and you\u2019re able to contribute an extra percentage every year to your retirement, it makes such a huge difference.\u201d<\/p>\n\n\n\n If people find they will not be able to meet their retirement goals in time, delaying their retirement from age 60 to 65, for example, can be a great way to bolster that fund. <\/p>\n\n\n\n \u201cIf you\u2019re working an additional five years, it makes such a difference,\u201d Motloung said.<\/p>\n\n\n\n The growth from those additional contributions benefits from being tax-free, both on the gains within the fund and the income being invested. <\/p>\n\n\n\n This extra period enhances the compounding effect as more contributions are made tax-free and continue to grow over time.<\/p>\n\n\n\n Additionally, clients at retirement age may have the option to stay with their employers on a contractual basis, even if many companies don\u2019t retain older employees full-time. <\/p>\n\n\n\n While there is still time to make adjustments even as one nears retirement age, Motloung urged people to make important financial decisions before retiring. <\/p>\n\n\n\n \u201cWhat we generally say is that the best thing you can really do, from a retirement perspective, is to try and make the decisions prior to retirement.\u201d<\/p>\n\n\n\n This is because if you try to make big changes at retirement age, \u201cit\u2019s often a bit too late\u201d.\u00a0<\/p>\n\n\n\n This article was first published by Daily Investor. Read the original here<\/strong><\/a>.<\/em><\/p>\n\n\n\n![\"\"](\"https:\/\/dailyinvestor.com\/wp-content\/uploads\/2024\/11\/Untitled-design-2024-11-11T152122.422.png\")
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