Retirement: are you ready?

One of the most significant challenges that every one of us faces is to know whether our plans are on track to ensure a comfortable retirement one day.

Jaco van Tonder, Advisor Services Director at Investec Asset Management, says the retirement formula, which states that if you save around 15% of your pre-tax salary from the very first day you start to work, and saving for 40 years should give you around 20 times your annual salary, which would allow you to enjoy a comfortable retirement.

“Start early, stick to the plan and the one important component is to not withdraw any of the money along the way. Not only must you save consistently, but you must also resist the temptation to cash in on some of the money after ten years to pay off your bond or to go on a holiday or start a new business,” Van Tonder says.

He adds that the rule of thumb to track your retirement performance early in your working career is that every pension investor receives a pension benefit statement, which is required by law.

“That should show you what the balance is that you’ve saved up in your retirement fund. So the number is fairly easy to get, the challenge is how do you know whether that number is on track and there are some useful goalposts.

“For most people, the conversation about retirement savings tends to snap into sharp focus around your late 30s, early 40s. You’re almost 20 years into your working career, you’ve got a family, more responsibilities and people start thinking about retirement for the first time being a reality. If we assume that is your first checkpoint, 20 years into your working lifetime, our calculations show that you should have saved around five times whatever your salary is at that point,” says Van Tonder.

If your annual salary at 40 is around R500 000, you should have about R2.5 million saved in your retirement fund. The second checkpoint is about ten years before you want to retire. For most people, this is around 50.

“Ten years before you retire, you need ten times whatever your annual salary broadly is at that time. Then five years before retirement is when you are almost entering that final growth path, you should have about 15 times what your pensionable requirement is going to be.

“So if the annual income you need when you are retired is R1 million, then five years before you should have about R15 million saved up. That puts you on the right path to reach that comfortable retirement outcome,” he notes. – Moneyweb

You must also resist the temptation to cash in on some of the money.