How much do I need to retire?

Three of the most common questions around retirement are: when can I retire, how can I save money and how much do I need to retire? There are many non-financial factors that need to be considered before making your decision because retirement is about aligning both money and values.

Below we highlight some of the financial and non-financial components to be considered when deciding on your retirement plan:

Financial aspects

The most concerning aspect about retirement is money. The only way to ensure you’re really prepared for retirement is to plan ahead and start saving.

  • How much do I need to retire?

Before you can really start saving money towards your retirement, get an idea of the standard of living you desire. Be realistic about how much you will be withdrawing from your savings and investments in the future. There are retirement experts who can assist you when you determine your figures and plan your savings, taking into consideration everything from the best savings accounts to the best way to invest.

  • How can I save money?

There are many ways of saving money for retirement. Everyone has their own opinion on saving money but, when it comes down to retirement, it generally comes down to diversification, low risk and long-term investments. Look at steady long-term growth options with low risk. There are investment options leading up to retirement and investment options once you have retired. Some common retirement investment options include:

  1. Pension Funds — you contribute a percentage of your salary through your employer and receive the benefit of this investment at retirement;
  2. Another option to save for retirement is a retirement annuity that works in a similar way to a pension fund, but the tax treatments are different;
  3. There are many different options you could choose from when saving for retirement. It depends on your investing needs.

Once you have retired and have accumulated savings, you will then live off the proceeds of your investments. You could consider investing in a Fixed Deposit Investment account. This option provides you with the opportunity to continue earning money on your investments even after you have retired and the interest pay-out is guaranteed, with very little risk. One fixed deposit opportunity is provided by African Bank and offers an investment rate of 13.33% calculated on expiry over a 60 month period (rates correct at time of publication). You could live off the interest paid out on an annual basis from the fixed deposit.

Non-financial aspects

  • What is the ideal age to retire?

Typically, the retirement age in South Africa is 65, but that has changed over recent years. Life expectancy has greatly increased and people are living longer than they used to. Consider this: if you retire at 65 but live to age 95, you will need to ensure you have enough money to sustain you for the last 30 years of your life. If you started working when you were 20 years old, that means you only worked for 45 years. Your “retired life” could be more than half the amount of time you spent earning an income.

Individuals are retiring at either an earlier or later time and one of the major factors are emotional/personal goals. People who love their work and have long term aspirations will look to continue working as long as possible. Others would prefer to work longer if it means that they will maintain a higher standard of living in retirement. Consulting and part-time work may be the best solution if you would like to continue working while not having to go to work every day.

Retirement is a major life decision that brings an adjustment period. The more time you spend thinking about your retirement, the better your decision will be about the timing of your retirement. The most important part about saving for retirement is to start as soon as possible and to stick to your retirement objectives.

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