This is a question on everyone’s mind, how much money do you need to retire comfortably in South Africa? There honest answer is; it depends, which is an answer that often leaves people unsatisfied. In this article we are going to dive deep into the factors that influence the amount of money you need in retirement.
The golden rule is that you should replace 80 to 90% of your annual pre-retirement income, 12 times your pre-retirement salary. A lot of us have to consider how we are going to live our lives in our “golden years”. A huge number of South Africans have not saved up for retirement, this simply means that a lot of people will depend on government grants when they reach retirement age.
What to consider
There are so many variables to consider, most retirement researchers can’t agree on a total amount. The general assumption is that your spending habits will change dramatically during retirement. It’s likely that your mortgage and other debts will be paid off. Another assumption is that you would have bought most of the assets that are needed to stabilize your life, these are assets like a house, furniture and cars.
Another thing to consider is that you won’t be saving towards retirement when you are in retirement. This means that your monthly costs and spending habits will drop down, which is why most researchers recommend that you replace around 80% of your income. You need about 60 to 80% of your current income to maintain your lifestyle in retirement.
How much should you save?
Making plans for the future depends on many unknown variables, you don’t know how long you will work, how long you will live and how well your investments are going to turn out.
For most people, you should aim to save around 15% of your annual income towards retirement. Age is a very important factor, someone that only starts saving for retirement in their 40s will need to save around 40% of their income.
Saving 15% of your annual income might seem like a lot, but you can take advantage of your employer matching. You can contribute 7.5% and have your employer contribute the other 7.5%. There are retirement savings vehicles like annuities that allow you not to pay tax on your taxable income that goes towards retirement. This is a 28% deduction on your taxable income, money that would have otherwise gone towards paying tax.
According to Business Live, you need around 3.6 million rand, most South Africans had saved R1.8million in order to buy pension and receive a monthly income of R12 000. Which was still short, R1.8 million will get you a monthly income that is less that R12 000 in retirement.
Conclusion
There is no one size fits all when it comes to the amount of money you need to save for retirement. People that are earning a lower salary will have to replace 80% of their income if they want to live the same lifestyle in retirement, people with higher incomes might only need to replace around 60%. Do you have any thoughts or questions? Comment below.
