How to achieve a financially healthy retirement

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June 6, 2019
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July 3, 2019

Looking at saving for our retirement is something we tend to put off until “tomorrow”. Often when tomorrow comes we find we do not have nearly enough money to give us an income to survive on let alone live on.

So why not take some time now to see where your retirement planning is heading

Required monthly income at retirement

Firstly you need to know what income in today’s money you will need at retirement and for how long.

Most experts usually recommend that you use 80% of your current salary as a target. And this will need to increase with inflation in retirement.

Remember when you work out what you want as an income at retirement it will be subject to tax.

If you live to age 65 you are more than likely to live for another 20 years. So you will need your income for at least 20 years otherwise there is a risk that your money will run out long before you die.

How much money do you need at retirement?

Your retirement annuities, pension funds, provident funds and preservation funds will provide a capital amount at retirement which you can invest to provide an income.

So how much money do you need in today’s value of money? The general rule is that you should not draw more than 6% of your capital each year to have a fair degree of comfort that you will not outlive your income.

This means that R1,000,000 rand invested today would give you an income of R5000 per month, increasing with inflation and lasting for at least 20 Years.

So, if you need R30,000 pre-tax income at retirement you will need R6,000,000 lump sum to invest etc.

If you draw more than this then your money will not last as long.

How much do I need to save to have enough capital at retirement?

The general rule is that you need to save 15% of your gross income each year from age 25 to age 65 to have enough capital at retirement.

Very few of us do this and each person’s situation is slightly different. So, the best thing to do is to use a retirement calculator where you can put your personal details in and calculate any shortfall you may have in your retirement planning.

One of the easiest to use is on the Old Mutual website. Just google “Old Mutual retirement calculator” and you will find it.

Good luck to planning for a healthy retirement!

This article is a general information sheet and should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted. (E&OE)