Retirement: How Much More Must I save?

You want How Much?

We now have to do all the sums backwards. So far we have looked at what your plan has been until now. If you’re on track for a safe old age, then relax and go have a drink. If your autumn income looks a little thin, then you need to guess an income that you can survive on, because we need to work out how more you need to save to get there.

Before we head into this section, a quick thought. I have simplified this as far as I can, but a few folk have asked for more depth. Where I can find that depth I have added links. Do not follow those links until you have finished, please, or else you will get buried in more detail than you could possibly want.

What do you want your retirement income to be? Pick a number that covers medical aid, food, petrol, rent (if you won’t own your own home), food, insurance (life and short term), drink (often the only solace), and whatever entertainment rattles your Zimmer frame. Ask your accountant to tell you what the gross value must be to allow you to pay tax and get that desired income. Or, for right now, just take a guess. Lord knows what the tax rate will be when we eventually get there. Just don’t sweat the details too much.

Which reminds me, the figures below are pretty scary. I THINK I have a solution in the next section (that would be next week) but please remember that I am not a financial advisor, nor am I selling anything other than my understanding of the problem. I am merely vexed that such a huge subject, that affects every one of us, has almost no unbiased advice. It seems that everyone has a vested interest, and I tend to a little leery of consultants who get paid depending on what they sell me.

I am convinced that the more we each know about the issue the more control we will have and the easier it will be to solve it - even if it looks unsolvable today. Having said that, do not take any action without running it past a competent and trusted advisor, and get yourself a second opinion on any major decision because the cost of backing out of a signature is bloody painful.

Please use the same Annuity Rate you used in the last calculation here.

If you have some funds already saved, well done. Many of us haven’t and we have all sorts of great excuses for that. Life has an awful way of not going the way we planned! Put your accumulated savings figure into the block marked How much do you already have?

The next two numbers are easy, but mess with them awhile. The longer you delay your retirement the easier this is - even though you might well opt for the same plan that I am looking at. (Remember that if you decide to retire at a later age, that Annuity Rate also gets much higher, which is much better.)

And finally, the wildest guess of all: What Interest Rate do you reckon you can get, OVER and ABOVE the Inflation Rate. If the Inflation Rate is 11.6% (published last week in SA) and you reckon your savings will earn 15%, then 15-11.6=3.4%, which is what you put in here. Whoever you consider placing your investments with should have some track record of Interest Earned. This is not hugely reliable, but if they’ve been above Inflation by a long way for a long time, then it is a much better omen than some crowd with no record or a spotty record. (No record is not a good sign, especially if they’re an Internet site based in Macau! Don’t laugh, I have seen a few folk go down that route. Both you and I know they lost everything, but it sure took them a while to realise it!)

(You can find the latest Inflation figures on the Stats SA site. The number I tend to use, as do most of the newspapers is the CPIX number)

And voila’, out pops the monthly amount that you need to start saving at the end of this month! Easy, eh? (The calc, not the finding the money!)

Mess with it until you’re comfortable, and please don’t get too vexed. Or, if you find yourself taking strain, check out my immediate solution here.

This route we’ve been looking at, the tried and tested, time-honoured route, turns out to be not the only route. Nor is it very tried and tested. And, in fact, it’s only been around for a short while, all things considered.

I have deliberately left out tax issues, because we will to look at them shortly. I have also left out the sundry costs involved with this traditional route, but I will cover those in the weekly email about retirement. The only way to get on that list is to complete the two minute Retirement Survey here.

To be Continued...