I Need R16 Million To Survive Retirement

I need R16 Million Feature Image

A couple of years back, one of my colleagues had asked me if I had a retirement plan, and to her surprised I didn’t and had actually never given it any thought until that point.  I was in my 20’s and retirement felt like an eternity away.  Finding me completely irresponsible, she then followed by asking me where I was planning to get money from once I stopped working, and I had no answer for her.  I guess at that age, I was still naive enough to believe that ‘when I grow up’ I will earn enough money to save up for retirement.  However, now that I am 30 and understand money better, I have realised that you are unlikely to be able to ‘save up’ for retirement based on an average salary.

My colleagues question had bothered me, and I had begun asking everyone I knew if they had a retirement plan of sort, and most people did.  South Africa, unlike many other countries don’t offer their pensioners much.  Upon retirement, you’re pretty much on your own.  The monthly pension from the government is a maximum of R1 500.00 (today’s money) for qualifying pensioners, with no form of medical care.  To see the criteria’s to qualify for government pension, you can visit the South African Government website.  It is quite evident that any working class person would need to be able to self-sustain upon retirement. 
There are various retirement plans, and the payout upon maturity is based on your monthly contribution.  One can pay as little as R500.00 a month, however with that contribution your end payout would most likely not be sufficient to last you the duration of your retirement, which is what the brokers don’t tell you when marketing their products.  This is why after 3 years of retirement, many pensioners go back into the work force.

Example:  

Being one of the younger working Gen-Y members, you start your retirement plan at the age for 25, you would like to retire at 65 and expect to live till 80.  You would thus be contributing to your retirement for 40 years.  Each month you save R500.00, and with an 8% compound interest, your end savings is R1 745 504.00 (FNB future value calculator), which sounds like a lot of money.   However if this is your mind set, you have not done your calculations and had not taken inflation into account, and what I am about to say will shock you.  
Let’s say, based on your current lifestyle your monthly expenses are R10 000.00, and you would like to maintain the same lifestyle upon retirement.  Assuming again you are 25 and will retire at 65, living for 15 years till 80.  According to the retirement savings calculator by Southern Charter, what you would need at age of retirement to sustain you for 15 years is R16 296 607.00 (equivalent to R1 584 392.00 in today’s Rand) which is an extremely far stretch from R1 745 504.00.  To achieve this, you will need to increase your monthly contribution to R2 190.00 total.  This is of course a basic calculation, without taking any assets or liabilities into consideration.
estimate-total-savings
There are various retirement calculators on the internet, that calculate different scenarios, and it is highly advisable to do this calculation in your 20’s for better future planning.  
I made use of Southern Charter’s retirement savings calculator as it was easiest and most efficient for me, however below are a few other links you can make use of:

Southern Charter
Old Mutual
Sanlam
Liberty
First National Bank – Future value calculator
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