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Get On Top Of Your Golden Years

Sanlam Intelligence
| Retirement Outcomes

Super easy retirement calculation checks if savings are on track

What do you see when you dream about your retirement years? A house with a sea view? Lazy days on the golf course? Your adorable grandkids underfoot as you trim the rosebushes?

The reality is very different. Recent statistics from the Sanlam BENCHMARK study (2014) show that many South Africans will not be able to make these dreams come true because their retirement savings will leave them very short of cash. But the good news is that Sanlam Employee Benefits (SEB) has developed a very simple calculation that you can use while saving to work out whether you will be able to maintain your lifestyle in your golden years.

The Calculation:

  • After working for 5 years, you need to have saved 1 x your annual salary
  • After 10 years, 2 x annual salary
  • After 15 years, 3 x annual salary
  • After 20 years, 4 x annual salary
  • After 25 years, 6 x annual salary
  • After 30 years, 7 x annual salary
  • After 35 years, 10 x annual salary
  • After 40 years, 12 x annual salary

Dawie de Villiers, CEO of SEB, says the beauty of the calculation is that it can be applied with very little sophisticated maths or financial knowledge. “All you need is an updated retirement savings lump sum and your annual salary figure, the calculation couldn’t be simpler. Ideally individuals will use the calculation throughout their working lives, starting from their very first year of employment. But for those who have started saving later, it is still a useful tool and will give a clear indication if they are falling short – they can then try to make a plan to increase the savings urgently.”

He says the calculation is based on what is saved through traditional retirement vehicles (RAs and work pension funds) and does not include other investments such as homes.

De Villiers points out a few noteworthy tips:

Working for 0 to 5 years:
How you start is a good indicator of how you’ll end up. So start saving for retirement from your very first salary. Saving easily becomes a habit and as we all know, it is harder to replace bad habits than good ones. If you are wondering where to start, it is always good to consult a trusted financial advisor. And be sure to take your work pension fund very seriously.”

At 5 years:
After five years of retirement savings, your interest starts compounding, defined by Investopedia as ‘the ability of an asset to generate earnings, which are then reinvested in order to generate their own earnings. In other words, compounding refers to generating earnings on top of previous earnings’. Albert Einstein called compounding the eighth wonder of the world – it really is that exciting to watch your money grow exponentially! Importantly, always remember to preserve your retirement savings in a preservation fund when changing jobs to ensure that your savings keep on compounding – this is the single biggest mistake members make when saving for retirement.

At 20 years:
You have reached the halfway mark of your formal working years and it is well worth taking a very deep look at both your retirement savings and your full financial picture to ensure you are on track for a prosperous, happy retirement.

At 30 to 35 years:
Now is the time to review how your retirement savings are invested and to start thinking about what type of annuity you would like to purchase at retirement. Aligning your pre-retirement savings with your intended annuity choice will reduce the impact of market movements or changes in long-term interest rates on the retirement income that you are aiming for.

At 40 years:
Most of us will be thinking of retirement around about now. Your next very important financial decision is how and where to reinvest your retirement savings so that you are able to maintain your lifestyle. Many funds offer members a default annuity option; that is a trustee approved and institutionally priced solution that is appropriate for the average fund member. Alternatively, you may bring in your personal financial advisor to consider the wide range of annuity options in the retail market. If you choose to go this route, engage your advisor early and don’t be afraid to challenge them and ensure they have really shopped around for the product which suits you best. After all, your days exploring the Kruger National Park or lunching in the clubhouse depend on it!

A year-on-year calculation is also available from Sanlam Employee Benefits.

About Sanlam Employee Benefits (SEB)
Part of the Sanlam Group, SEB specialises in the provision of risk, investment and administration services to institutions and retirement funds. Focused on meeting the unique needs of its diverse clients, SEB assists companies create and deliver customised employee benefits solutions, including the collection of premiums and communication to fund members. For more information, visit www.seb.co.za or follow us on Twitter @sanlamnews.

Visit the Sanlam Benchmark website here.

 

Sanlam Life Assurance Company (Ltd) is a licensed financial services provider.

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