You require at least savings of 17 times your final annual salary to earn an income of 75% of your last pay cheque, escalating at inflation annually, for a period of 30 years.
To break this down and to track your progress you’ll need to meet the following savings milestones:
- 2 times your annual income saved at age 35;
- 5 times of your annual income saved at age 45; and
- 10 times of your annual income saved at age 55.
The question is have you saved enough? This is a harsh reality and could be hard to swallow if you realise that you are actually way behind.
The goals listed above are generic and based on specific assumptions. We at Ultima realise that these generic assumptions do not apply to everyone and therefore you require a unique tailored financial plan. This entails analysing your financial situation and your financial objectives. With this information we can tailor your financial plan at retirement to ensure the assets you’ve work so hard to accumulate will be maximised to enable you to reach your income objectives.
The reality is that no investment’s performance will compensate for a lack of savings. We advise you to consider the following 4 points if you are in a situation where you have not saved enough for your retirement:
- Prioritise savings. Generally persons between the ages of 50 and 60 tend to spend more on lifestyle expenses due to all the financial compromises incurred over the previous 20 years. This is usually as a result of the large burden of education expenses for children. Research confirms this means a higher likelihood of a new motor vehicle, renovations to your primary or secondary residence and/or increased expenditure for family holidays. We are not implying these expenses are not important to you, but merely questioning whether these expenses are more important than a sustainable income for the duration of your life. Focussed saving and investing is essential to ensure compound growth is utilised to maximise retirement savings. This is a discipline which is critical in a life stage where you should be able to spoil yourself. Our advice is that you ensure that you “spoil” yourself with a decent income in retirement before you spend lavishly on lifestyle expenses.
- Re-evaluate your income objective in retirement. Will 75% of your last pay cheque be a reasonable income if:
- You are debt free;
- Your children are financially independent; and
- You are downsizing.
- Consider delaying your official retirement by a few years. More importantly the effect of a delay in utilising your retirement assets, to provide an income, will have an exponentially positive result on the longevity of your retirement assets and is an accomplished method of circumventing a shortfall in your retirement savings. In addition, research done by the Oregon State University in 2016 indicates that working past the age of 65 could lead to a longer life, while retiring early may be a risk factor for dying earlier.
- Obtain professional financial advice and book an appointment with a CFP® financial planner. We advise this strongly to ensure your savings are structured in the most tax efficient way and that your portfolio is setup to maximise income in retirement.
Sources: Kyknet Sakegesprek, Jeanette Marais: Director Allan Gray & Oregon State University