How much do I need to retire in South Africa?

According to the South African Reserve Bank (SARB) the average South African spends 75% of his/her paycheque on servicing debt. This means that households spend three-quarters of their take-home pay on debt and only have a quarter of their salary to spend on everything else. This begs the question: if we’re spending most of our money on debt and using the rest to cover our essentials, how many of us are saving to retire in South Africa? And how much does one need to retire comfortably in South Africa?

The recently published 10X Retirement Reality Report is based on the annual Brand Atlas Survey, which tracks the lifestyles of the 15 million economically active South Africans in households earning more than R8,000 per month. In total, 71% of survey respondents indicated they had no retirement savings plan at all, or just a vague idea of one. That is a lot of people who could be forced to rely on the kindness of family and friends, or to live off South Africa’s meagre state pension of R1,890 per month. More than 50% of the respondents indicated that they simply don’t save because they don’t have enough money left at the end of the month.

So just how expensive is retirement and how do you start a savings plan to get there?

According to retirement expert  Andre Tuck from 10x Investments there are three “old school” ways to “guestimate” how much you will need for retirement.

  • 1: Multiply your final annual salary by 15

“Let’s say your take-home pay is R25,000 a month in your final year of working, giving you an annual salary of R300,000,” said Tuck. “To maintain your lifestyle after retirement, you’ll need around 15 times your annual salary, so 15 x R300,000, meaning a lump sum of roughly R4.5 million,” he said.

He added, however, that if you are hoping to do things you didn’t do during your working years, for example, travel, you should rather multiply your final salary by 17, or even 20.

  • 2: Save R1-million for every R5,000 you want to draw down as a pension every month

You can also get a rough idea of how much money you’ll need to have saved at retirement by assuming that you will need R1 million invested in an annuity for every R5,000 you want to draw a month once you’re retired. So, if you want to draw a monthly pension of R25,000 a month, you will need to have squirrelled away R5 million by the time you retire.

  • 3: Multiply your monthly needs by 300

One of the simplest calculations is to multiply what you think you’ll need per month (say R25,000) by 300 to determine the lump sum you will need to have saved (R7.5 million in our example). This option gives a slightly higher figure than the other two options, which is a good thing, says Tuck.

The figures are, to say the least, sobering. The truth is, the money you are spending on servicing your debt every month, could be going into your retirement plan or at least some sort of investment that guarantees you’ll be comfortable in your golden years.

If you’re ready to get our of debt and use that money to rather invest in your future, talk to one of our qualified Debt Counsellors today. We’re ready to help you become debt free as soon as possible so that you can start investing your finances in your future. Fill out our FREE ONLINE APPLICATION FORM to get started. 

 

 

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