How much is enough to retire?

Retirement is a tricky topic, especially if you think that you’re not on track with your savings and don’t know whether “enough” is actually enough.

“Generally speaking in SA, we’ve got an extremely low savings rate. If you look at the average level of savings in SA in relation to GDP, it’s about 15%,” said Winston Monale of Barclays Africa this week, on Safm’s Market Update with Moneyweb.

Contributing factors include average salaries being low and the cost of living being high.

“But if you do the comparison to similar markets to ours, the average Chinese worker, who actually earns less than the average South African, is able to save over 50% in relation to their GDP. In India it’s about 30%; Brazil about 25%. Clearly what this points to is an issue around the savings culture in South Africa. So we certainly need to significantly increase our savings. And one of the reasons we need to increase our savings is because we need to prepare for retirement.”

He says there are a number of ways to calculate how one should arrive at the retirement savings number. “Ideally, from a planning perspective, we like to say understand what your objectives are, have a plan. Start early, review your plan regularly and consult an advisor.

“That said, there are tables that one can work to, based on certain assumptions. So you’ve got to make big assumptions around what you are going to contribute towards savings on an annual basis. If you are seeing, say, 15% savings of your annual salary, you’ve got to make an assumption around investment returns. So we say around 10% per annum – and in this current environment of course that’s very tricky. You then want to make assumptions around salary increases of around 6.5%.

“As you approach retirement, after 40 years of having worked, we typically say on those assumptions that you should have saved [during your career] 15 times your salary in the year of your retirement.”

A simple example is if in the final year of your retirement you earn an annual salary of R1 million, you should have saved R15 million towards your retirement plan.