Saving for retirement is financially to most difficult journey you would ever go on. If you started early, it is easier because you made yourself used to not having that money available in your life.
A bold statement, but in my experience the absolute truth. If you want to retire with a measure of income that comes even close to what you were earning in your working life, then you would need so save 20% of your income in a retirement product for 30+ years.
The below financial information is the ideal.
People have financial obligations each and every month for their entire working lives, which get paid on time by most. Although that might be true, all of those payments are out of obligation, with dire consequences if non payment to occur. Retirement savings in voluntary policies, can be stopped, and you will have little to no immediate consequences. If you want to save enough for retirement, the commitment is even longer than a bond, and the amount is substantial. That is why it is so difficult. I always say to clients that ask me, how do I now I save enough. My first response is, if you do not have to reduce your standard of living in order to pay your retirement savings, then you know you don't save enough. If you don't feel that money leaving your life, every month, then it is not enough!
Saving for retirement can take on different forms pre retirement. It can be in an employer fund, a voluntary retirement annuity which you took out at an insurer of your choice. When you do your planning, you should consider all these contributions as they will all play a part in your retirement planning. In most cases an employee fund at work, will not be enough to fund your retirement, that is why you need to review your plan yearly and start with additional savings to support your employee pension fund, as soon as possible.
Consider the following example
You save R10 000 per month, going up yearly with 10%
You save it in a medium risk unit trust for 30 years.
in these 30 years, your average growth is 10% and the SARB succeed in keeping inflation at 4% during this time.
You can get your total fees at 2%. That include your investment management, broker and the admin fee of the insurer. that is why you need a good broker!
If the above mentioned assumptions hold true, you will save a real amount of R10 000 000. Your nominal amount will be R45 0000 000, but in 30 years the R45 000 000 will only give you buying power of R10 000 000 in todays money. You should thus work with the R10 000 000
If you invest R10 000 000 today in a guaranteed annuity and you make your withdrawal rate 5% per year, you will secure an income of R41 666.67, before taxes.
If you earn R45 000 today, you must save R10 000 per month for 30 years in order to be able to keep your living standard in retirement - that is 22% of your income.
Start early, reduce your standard of living. Live on less than you make. Live on what is left after you saved and do not try to save after you spent your salary. Saving is a priority.
If you have not started early - start as soon as possible and postpone your retirement, do not look back at the time lost, start now, budget and change your financial ways! The above mentioned is the ideal situation in South Africa. As we all know, very little is ideal in South Africa. Start now and start with what you can in order to make your budget used to live without that money every month.
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