Finweek English Edition - - IN DEPTH RETIREMENT -

Many baby boomers who have al­ready re­tired are start­ing to run out of money. And much of this has to do with longevity. Gone are the days when we as­sumed we would kick the bucket some­where be­tween 70 and 80.

Ad­vance­ment in health­care has meant life ex­pectancy has length­ened and this longevity re­quires that financial plan­ners take a some­what dif­fer­ent stance when plan­ning for an in­come for life. To­day, life ex­pectancy is around 90 years.

Let’s as­sume retirement at 60 or 65 equates to 25 or 30 years with­out a salary. Those 30-odd years don’t come cheap given that, at the very least, this is when re­tirees can ex­pect in­creased med­i­cal costs. “It’s a guide, but I try to plan to 100,” says Karp. “When you re­tire, you need 20 times your an­nual ex­pen­di­ture. So, for ex­am­ple, if your cur­rent ex­penses are R30 000 per month that equates to R360 000 an­nu­ally and mul­ti­ply­ing this by 20 means a to­tal of R7.2m would be re­quired.”

Whether this amount would be enough de­pends on whether the cap­i­tal in­creases by at least in­fla­tion plus the fees paid to man­age that money, says Wil­liams. “Rather than in­di­vid­u­als ask­ing them­selves how much cap­i­tal they need, the ques­tion they should be ask­ing them­selves is this: How much in­come will I have at retirement and will it be able to pay my ex­penses for my life­time?”

“While how much cap­i­tal you have is not ir­rel­e­vant, what is far more rel­e­vant is how much in­come you will have,” says Wil­liams, who plans in­def­i­nitely for af­ter-tax in­come in­creas­ing with in­fla­tion.

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