Re­tire­ment: are you ready?

The Citizen (KZN) - - PERSONAL FINANCE -

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. Jaco van Ton­der Ad­vi­sor Ser­vices Di­rec­tor

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