Here’s how much you should have saved for retirement by the age of 40

[BusinessTech]

Here’s how much you should have saved for retirement by the age of 40

Alexander Forbes notes that South Africa has one of the worst savings rates in the world of just 15.4% of gross domestic product (GDP) - it has more of a debt culture than a savings one.

 

[krycor]

I think a better way to look at it is vs years worked.

Yes technically you should consider age but at the end of the day not everyone will start work at 24 let alone earn more than a miner albeit with a degree. By that same token not everyone will be able to retire at 65 and may be forced to at 75..

By that same token as a late starter you need to bump your contributions up or have an exodus plan vs SA.

 

[Johnatan56]

I think a better way to look at it is vs years worked.

Yes technically you should consider age but at the end of the day not everyone will start work at 24 let alone earn more than a miner albeit with a degree. By that same token not everyone will be able to retire at 65 and may be forced to at 75..

I know quite a few who kept working after 65 because they enjoyed their job, sadly the difference between working for money vs enjoyment.

Problem with the article is target market, most of South Africa is in the lowest income group, they can't save 11.75% if they can't even make their current salaries (if they even have a job) meet the current expenditures.

I am still wondering what happens to those who live long past the amount of money they save, most expect maybe 20-25 years of life after retirement, but with better medicine, etc. what about those who live past 100 on a retirement value of max 85. I am lucky my grandparents have Austrian government grants and he invested well, so they're still living fine, but costs don't decrease as you get older, getting extra help around the house, frequent trips to check-ups/hospital, etc. and I don't think most factor that in.

 

[Kosmik]

I said this last time about these articles, if you say @ 40 that you should have saved 3x your annual salary by then, it's a bit unfair as MOST of your salary growth happens pre-40's. Increases are far higher the lower you earn.

 

[TheMightyQuinn]

Here’s how much you should have saved for retirement by the age of 40

Alexander Forbes notes that South Africa has one of the worst savings rates in the world of just 15.4% of gross domestic product (GDP) - it has more of a debt culture than a savings one.

Bullschit Alexander Forbes sales pitch...

Who the fuk retires at 65, unless forced to by the company you work for? When many people reach that age and CAN retire, their boss offers them a consultancy position so as not to lose all that experience and know how.

Also when you retire your kids should be out of the house and the house and cars paid off. Biggest expense per month should be your medical aid.

 

[Johnatan56]

Bullschit Alexander Forbes sales pitch...

Who the fuk retires at 65, unless forced to by the company you work for? When many people reach that age and CAN retire, their boss offers them a consultancy position so as not to lose all that experience and know how.

Also when you retire your kids should be out of the house and the house and cars paid off. Biggest expense per month should be your medical aid.

Depends on the job type.

 

[krycor]

I know quite a few who kept working after 65 because they enjoyed their job, sadly the difference between working for money vs enjoyment.

Problem with the article is target market, most of South Africa is in the lowest income group, they can't save 11.75% if they can't even make their current salaries (if they even have a job) meet the current expenditures.

I am still wondering what happens to those who live long past the amount of money they save, most expect maybe 20-25 years of life after retirement, but with better medicine, etc. what about those who live past 100 on a retirement value of max 85. I am lucky my grandparents have Austrian government grants and he invested well, so they're still living fine, but costs don't decrease as you get older, getting extra help around the house, frequent trips to check-ups/hospital, etc. and I don't think most factor that in.

Yip most professionals work onward to 75+ and generally keep healthy. The ones that stop working early actually suffer as a result if not careful.

While I agree with the notion that most South Africans can’t/don’t save enough, I suspect the target demographic is educated professionals. What will be interesting going forward is watching how retirement impacts South Africans 20+yrs post expansion of monetary system, CoL increases for international goods, medical costs and currency instability. I’m not talking CEOs but the avg professional.. I reckon a scary future awaits

 

[Dan C]

I'm going to marry one of the Spice girls and retire early

 

[Gaz{M}]

Retirement is such a complex issue. It really can't be reduced to "rules of thumb" because everyone has such different circumstances, the advice ends up being wrong for most people.

Try do some of your own calculations.

Think if you retired on today's salary, but with no bond or children expenses to pay. Also remember you don't need to "save" anymore because your are retired, so eliminate savings and pension from your salary "needs". Look at what you spend every month only.

Now take this amount, multiply by 25 and then by 12.

This gives you the lump sum you need to take a 4% draw rate on your capital. A safe bet, but still very vague.

But now what about taxes? Especially for those earning decent salaries, you need a lot more than you think.

It's really very complex, and if you can't do the math, then get advice (but NOT from a old school life or pension company who just want to sell you their crap policies).

 

[3WA]

Most of the men in my family die before 75. If I save up a whole lot and don't get to blow it, I'm going to be seriously p1ssed off.

 

[Kosmik]

Most of the men in my family die before 75. If I save up a whole lot and don't get to blow it, I'm going to be seriously p1ssed off.

Thats the sad thing about retirement.... you actually don't know how long it is going to last or be needed.

 

[Cius]

Getting to 3x by 40 is a bit simplistic. I am one of the most diligent savers I know and I turn 40 next year and have not reached that yet, not by a fair margin.

Fist of all, most of your wealth is generated in the last few years of your pension, when the base is bigger. The first couple years get the ball rolling.

Second, your salary generally rises rapidly between when you start and when you hit say 35/40. Hence for most of that saving period your earnings where way below what you earn at 40. Hence I easily have more than 4X my average salary for the period, but no way do I have 3x my current salary.

Third, they take absolutely no cognisance of economic cycle. If you turned 40 in 2007 you would be ahead of 3x as that was the end of a massive bull run. If you turn 40 around now good luck to you as returns have been fairly low historically speaking between now and 2008. Hopefully the cycle turns and we have a few more years where pensions all grow 20%+ plus but I think we are a ways away from that even in a best case scenario.

Rules for pension:
Start early, with your first paycheck
Try put away 15%+ of gross, 20% is better
Never withdraw your pension, always leave or re-invest if moving
Track your growth and ensure you are in decent funds!
Diversify, spreading it out over 2 or 3 different funds is not a bad idea. Big company pensions tend to do this for you.

 

[SauRoNZA]

I said this last time about these articles, if you say @ 40 that you should have saved 3x your annual salary by then, it's a bit unfair as MOST of your salary growth happens pre-40's. Increases are far higher the lower you earn.

Makes sense to me then as your salary for calculation would be at it's highest then relatively by 40.

That salary at 40 would then be the kind of salary you expect to maintain a lifestyle against for the rest of your life.

Pointless using your salary at 25 for a calculation like this, as it would be at it's lowest and easily achievable.

Besides nothing about this game is about fair or unfair so that is really quite irrelevant. It's all about whether you can or can't retire comfortably....and most will find out life is very unfair in that regard.

 

[Kosmik]

Makes sense to me then as your salary for calculation would be at it's highest then relatively by 40.

That salary at 40 would then be the kind of salary you expect to maintain a lifestyle against for the rest of your life.

Pointless using your salary at 25 for a calculation like this, as it would be at it's lowest and easily achievable.

Besides nothing about this game is about fair or unfair so that is really quite irrelevant. It's all about whether you can or can't retire comfortably....and most will find out life is very unfair in that regard.

oh I agree with you that 40 is the right salary to measure to try and maintain for retirement but I seriously doubt folks will have 3x the annual salary in retirement by then. It also depends on salary growth I suppose. From my first salary to now is something stupid like 500-600%. Even more if you take slightly lower into account. I've got just about a year and a quarter annual saved for retirement so far, growth has sucked the last four years.

 

[ArtyLoop]

Bullschit Alexander Forbes sales pitch...

Who the fuk retires at 65, unless forced to by the company you work for? When many people reach that age and CAN retire, their boss offers them a consultancy position so as not to lose all that experience and know how.

I was taught to do it that way, well on track for that

Also when you retire your kids should be out of the house and the house and cars paid off. Biggest expense per month should be your medical aid.

My old man did exactly that and yes, their only and biggest expense is nearly R10k/month into Adrian Gore's ******* (aka Disrobbery Health)

 

[SauRoNZA]

oh I agree with you that 40 is the right salary to measure to try and maintain for retirement but I seriously doubt folks will have 3x the annual salary in retirement by then. It also depends on salary growth I suppose. From my first salary to now is something stupid like 500-600%. Even more if you take slightly lower into account. I've got just about a year and a quarter annual saved for retirement so far, growth has sucked the last four years.

Oh yeah in that regard I agree I very much doubt most would and I'm not 40 yet so can't say 100% if I've made it or not but at current salary I should be close, but things will probably change by then.

I guess ultimately the equation also means that if you've got 3x annual by age 40 you can probably take your foot off the gass a bit as there is enough to set you up through compound interest.

 

[Kosmik]

Oh yeah in that regard I agree I very much doubt most would and I'm not 40 yet so can't say 100% if I've made it or not but at current salary I should be close, but things will probably change by then.

I guess ultimately the equation also means that if you've got 3x annual by age 40 you can probably take your foot off the gass a bit as there is enough to set you up through compound interest.

One should never take your foot off. Especially as you hit 50's, your investments tend to go into lower earning categories for safety. So yes, you will hopefully score on compound in the early years but don't rely on it later as it will be low.

 

[SauRoNZA]

One should never take your foot off. Especially as you hit 50's, your investments tend to go into lower earning categories for safety. So yes, you will hopefully score on compound in the early years but don't rely on it later as it will be low.

No no, what I mean is in your earlier years you would pump every bit of extra into your investment to build up your capital.

Max out your 27.5%. Pump your TFSA. Invest your bonuses etc.

Come 40+ you can then probably start scaling it back a bit a live a little if you put the hard work in earlier.

Drop down to 15%, use your bonus for nice things etc.

Most however wouldn't have made the effort and will need to do the opposite of ramping it up instead.

 

[cguy]

The approach in the article is a bit simplistic.
1) Figure how much income you will need at retirement age.
2) Ideally build enough passive income to cover (1), including a margin of error. At 40, it makes sense to understand if you are on track to achieve this.
3) Failing (2), ensure that passive income and capital withdrawal are sufficient to meet your target (what you want to leave for inheritance) at estimated maximum age. Factor in that your passive income is partly a function of your capital so this needs to be computed carefully (and ask for help if necessary). At 40, you should once again be asking if you are in track to achieve this.

 

[Lord Farquart]

My retirement plan is dependant on having at least one successful child.