HOW MUCH MONEY DO YOU NEED?
IT IS AS IMPORTANT TO HAVE A DIVERSIFIED INVESTMENT APPROACH IN RETIREMENT AS IT IS WHILE ACCUMULATING WEALTH.
Actuaries have worked out a very basic formula
to help you reach retirement targets.
To retire at age 55
You will need to have saved 12 times your average annual income.
To retire at age 60
You will need to have saved 11 times your average annual income.
To retire at age 65
You will need to have saved 10 times your average annual income.
HOW DO YOU REACH THESE TARGETS?
To get to this target it has been calculated that you should save 15% of your salary for 30 years or 10% of your salary for 40 years.
If you are not saving at least 15% of your salary via a pension or private savings plan, your retirement is under threat.
Fear and anxiety about market volatility coupled with a low growth environment often drive retirement investors to low risk investment options in an attempt to protect their capital.
Avoiding risk in retirement is prudent in many instances, but in view of significantly improved longevity this may have the unintended outcome of completely depleting capital.
By taking on fewer growth assets the investor is effectively reducing his/her income-earning potential by at least ten years, compared with an investor who included a balanced type portfolio in the overall investment strategy.
LOW RISK MAY DELIVER AN UNINTENDED HIGH RISK SITUATION: depleted capital and many years of living still ahead.
READ SOME OF OUR RECENT RETIREMENT PLANNING ARTICLES
Living to a 100 was considered something special and unique three decades ago as average life expectancy was around 70 for women and between 60 and 65 for men. Thanks to healthier lifestyles and medical advances living to 90 and older is nothing out of the ordinary any longer and retiring at 55 or even 60 not realistic. Contributing to retirement funds during income earning years should be an investment and savings priority.
In the richest country of the world, the United States, the pension bomb is ticking as millions of “baby boomers” (the generation of Americans born 1945 to 1954) head towards retirement in their millions with under funded pension fund liabilities.
in SA the problem is equally big – if not bigger
The state pension, currently R1520 per month, is essentially a social safety net for the very poor. It can never be seen as the type of pension that anyone would like to look forward to. Therefore, there is likely to be only two sources of future pension funding for most South Africans – their company sponsored funds or the individuals themselves.
And herein lies the problem. The average South African, although reasonably well educated and employed on a good salary, has no idea how his or her pension fund works. It is only when they start approaching retirement that the make an effort to find out what the pension benefits are likely to be – and then it is often too late.
ASK YOURSELF – DO YOU KNOW THE RULES OF YOUR FUND AND WHAT IT MEANS FOR YOUR RETIREMENT?
If not, then I suggest that you start finding out.
It has been estimated that only about 4% of South Africans – and that is a very liberal calculation – can afford to really retire in the conventional sense of the word, i.e. stop working and live off a pension for their rest of their days.
For the rest it is going to be a case of working longer, working part-time for extra money, living off relatives/family/children. And even those who happen to be marginally financially independent might consider working for longer to ensure that their capital is not threatened by retirement.
We often come across people who want to retire at 55, or at the first opportunity that their company allows. This is very foolish as most people under-estimate the value of a regular income. Our advice is to hang on a income for as long as possible, especially if you are getting closer to retirement and have not yet put enough money away.
Every year that you delay cashing in on your pension (and start drawing on your capital) means more growth in the portfolio and more contributions into the fund.
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MARIA is a CERTIFIED FINANCIAL PLANNER®️ professional, a member of the Financial Planning Institute of SA and is fully qualified to give advice on all investment matters.
Anelle joined Brenthurst Wealth as a Receptionist and Administrative Assistant to Brian Butchart in the Cape Town office in December 2023. She has a wealth of knowledge from working as a liaison between Financial Advisers and clients at TMA and Absa Investment Management Services (Aims) since 1998. She obtained her B. com degree from the University of Port Elizabeth in 1997.
René Heystek joined Brenthurst Wealth in November 2023, as receptionist and administrative assistant in the newly established George/Garden Route office.
Sanet was appointed in April 2020, joining our Cape Town team as an Executive Administration Assistant to Renee Eagar. She has been in the financial services industry since 1990. Her previous experience includes positions at Sanlam, BJM and ABSA. She spent her last 12 years working at Alexander Forbes Private Client Wealth as a Senior Wealth Management Assistant. She has received numerous accolades over the years which include but not limited to, Alexander Forbes Client Service Excellence – Silver award in 2014,2015 and 2017. Sanet has also obtained her Certificate in Wealth Management (NQF 5) in 2012 and achieved “Best Student of the Year” from Moonstone.
ADMITTED ATTORNEY | FINANCIAL PLANNER & HEAD OF BRENTHURST FOURWAYS
