This is a question which makes many people nervous!  What happens if you don’t save enough, and how much is enough?

There are some simple rules of thumb which help to clarify the question.

Firstly you need to consider how much income you expect to need in retirement. This is usually based on the expenditure profile of your current lifestyle, with some adjustments.

You will in all likelihood not be funding children going through school or university and your bond will be paid off. You may however want to spend more on holidays or overseas trips and could face increased medical costs.

A commonly used rule of thumb is that a retiree needs 75% of the income whilst working.

If for example your income whilst working is R80 000 per month, the 75% rule points to an income of R60 000 per month.

In retirement, you will want your income to increase with inflation and your retirement investments will most likely be invested for balanced growth and risk. You will also want the money to last as long as you live, and life expectancy is increasing by 2-3 years every decade. If you withdraw at a rate of 4%-5% of your investments, your money will last for 30 years.

The best way to save is to start with 15% of your income from the time you start working, and never cashing it in when you change jobs. If you are only starting at age 35, this should be 25% of your income.

What happens of you can only save R10 million? You would have to draw 7.2% per year to give you R60 000 per month. In this case your savings are predicted to last 17 years. Alternatively, you would need to reduce your income requirement to R42 000 per month at a drawing rate of 5%, or just over 50% of your current income in our example.

Are you on track with your retirement savings? If not, speak to us about what action you need to take now to get there.