Perhaps you dream of the day you can comfortably retire from the daily grind. Unfortunately, fewer than 10% of South Africans are saving up enough to make their retirement dreams a reality.
How much is enough?
The general rule of thumb is that you’ll need 75% of your current income monthly at the time of your retirement, based on the assumption that you’ll have already paid off your home loan and debt. However, many financial advisers now advise clients to work towards 90% of their income, as the cost of medical expenses tends to increase significantly after retirement.
While every person’s requirements are unique, here is a general guideline of how much you need to have saved through your working life.
- After working for 5 years, you should have saved the equivalent of 1 year’s salaries
- After 10 years, you should have savings worth 2 years’ salaries
- After 20 years, you should have savings worth 5 years’ salaries
- After 30 years, you should have savings worth 10 years’ salaries
- After 40 years, you should have savings worth 17 years’ salaries
How to save for retirement
Start saving as early as possible. To achieve your retirement goal, you must plan for the long term and be financially disciplined. The financial industry’s suggested rate of savings is 15% of your gross income (before tax and other deductions) over 40 years – from the age of 25. Use the following steps to get your retirement plan on track:
- Create a long-term retirement savings plan. Speak to a qualified financial adviser who can do a full needs analysis of your financial affairs and construct a retirement plan tailored to suit you.
- Regularly review your retirement plan and your savings progress. If you have delayed saving for retirement, you may need to be more aggressive in how you invest your savings to meet your goals. Regularly review your progress and adjust your plan as circumstances change.
- Never cash out your retirement savings. Always reinvest your retirement savings intelligently after getting expert financial advice.
- Save assertively. Even if you have a company pension fund, aim to save an additional amount every month. Ruthlessly cut your expenses and start immediately for the best results.
Your retirement dreams can be realised. The key is to start immediately and create a plan with the help of a financial adviser. Keep reviewing and updating your plan to ensure the comfortable, financially secure retirement you deserve.
The information is shared on condition that readers will make their own determination, including seeking advice from a financial professional. E&OE.