HOW MUCH DO YOU NEED TO RETIRE COMFORTABLY?
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.