How much money do you need to maintain your retirement lifestyle in South Africa?


Retirement is usually the last thing that comes to mind under the age of 35. However, experts warn that this lack of planning can lead to financial disadvantages for the millennial generation.

The average retirement age in South Africa is 60 years old, but statistics from the latest 10X Retirement Reality Report show that only 6% of South Africans are on their way to decent retirement by that age.

“For years, financial planners and other financial institutions have tried to convince young people that they should set aside up to 20% of their salary every month for retirement. Saving for retirement should begin in your twenties, ”said Gus Van Der Spek, developer of the upscale senior village Wytham Estate.

“Unfortunately, retirement at this age may seem like an abstract concept and Covid-19 has exacerbated the situation,” he said.

Why don’t we look ahead?

Much of the country is barely getting by, there is no income that can be put aside as savings. While this is the main reason for the small percentage of South Africans who are on their way to a decent retirement, other more subtle factors contribute to why those who can afford to invest in their futures don’t.

“We live in a time of deep uncertainty – made worse by the effects of the Covid-19 pandemic,” said Van Der Spek. “Given the current climate, many young people find it difficult to plan even a year in advance – let alone 40 years. “

“Unfortunately, aging is inevitable, and it’s vital to have a plan when the time comes, especially if you want to comfortably pass your golden years.”

How much should you put aside?

Van Der Spek said that while many financial planners advise setting aside a certain percentage each month, how much you want to save should be influenced by future lifestyle considerations rather than a uniform approach.

“When it comes to the specific costs of retirement homes or living, there is a huge choice – and at different prices. Before you start saving, it helps to have a realistic idea of ​​how you would like to live in retirement and what it will cost so that you can budget accordingly, ”he said.

For those wondering what the difference between an Old Age Pension (RA) and a Pension Fund, Van Der Spek said, “An RA is taken out by an individual, while a Pension Fund is provided by an employer and is tied to your employment status. ”

The rule of thumb for a comfortable retirement is 15%. “You should set aside 15% of your salary for your entire work career of around 40 years. For those who want to retire in luxury, 20% plus is recommended. Also remember that the value of R1 will be different until you retire. “

Van Der Spek shares advice from financial planners by saying, “Multiply your needs by 300. Simply put, if you are currently living on R50,000 a month, multiply that by 300 to determine what it is you need to maintain a luxurious lifestyle after age 60. “

Van Der Spek’s comments align with retirement expert Andre Tuck, a senior investment advisor at 10X Investments.

Tuck also mentions three old school ways to “appreciate” your retirement goal:

1: Multiply your last year’s salary by 15

“Let’s say your final year of work is 25,000 rupees a month, which gives you an annual salary of 300,000 rupees,” Tuck said. “To maintain your lifestyle after retirement, you will need about 15 times your annual salary, which is 15 x R300,000, which equates to a lump sum of around R4.5 million,” he said.

However, he added that if you’re hoping to do things you haven’t done during your work hours, like traveling, you’d better multiply your final salary by 17 or even 20.

2: Save R 1 million for every R 5,000 you plan to retire each month

You can also get a rough idea of ​​how much money you must have saved in retirement by assuming that you will have to invest 1 million Ren in an annuity for every R 5,000 that you wish to withdraw monthly in retirement. So if you want to receive a monthly pension of R25,000 a month, you must have missed R5 million by the time you retire.

3: Multiply your monthly need by 300

One of the simplest calculations is to multiply the monthly need (e.g. R25,000) by 300 to find the lump sum you need to save (R7.5 million in our example). This option gives a slightly higher score than the other two options, which is a good thing, says Tuck.

“The more money you can invest after you retire, the better your lifestyle will be and the more likely you will be able to withstand the effects of unexpected events like the current pandemic,” he said.

“Plus, I’ve never heard anyone say they’re worried about having too much money in retirement,” Tuck said.

Van Der Spek said that maintaining one’s lifestyle should be of paramount importance in their golden years. “People live longer, so your retirement plans should be backed by the quality of life you want in retirement.”

Simple retirement tips for millennials

  1. Time to take the first step. “Whether you’re 20 or 30, it’s time to save up for retirement. Whether you save 15 to 20% or whatever you can, it is important that you start. “
  2. Searching for help: “Work with a financial planner to do the calculations. They can plan the trip, analyze what is needed and help you determine the amount that will be needed for a stylish retirement. They also help in choosing the best interest-bearing retirement plan or pension fund on the market. “
  3. Do your research: “Some companies, especially large corporations, allocate part of their total costs to the company as a salary for a pension fund or retirement pension. Find out what that means with the HR team and stay up to date by tracking performance throughout. “
  4. Focus on the end goal: “On the days when you think retirement might be better spent on vacation, take some time to imagine your retirement. This will help you stay on track – think of short term sacrifices for long term gain. “
  5. Increase your allocation: “If you get paid increases at work, make sure you add to your retirement plan accordingly. Even a little bit can go a long way, ”he said.

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