How much do you need to retire comfortably?

It’s a question 10X Investments Consultant Team Lead Andre Tuck gets asked all the time: How much do I need to retire comfortably? Clients seek to leverage his decades of experience in the financial services industry to get a realistic idea around which to build their retirement plans. Often, they’re taken aback by the answer. But, before we get to that answer, we need to understand that the key to the whole equation is time.

Knowing how much you need to save for retirement is based on how old you are now. That number is the starting point, because it gives you an idea as to the time horizon you are working with. Clearly, the earlier you start, the more you are able to benefit from the compounding growth of your investments. Assuming you’re invested in the right product with a reputable investment manager, you can think of it like this: your monthly contributions + consistency + time = a better chance at a good return on your investment.

Want to see what’s possible in the time between now and your retirement? We’ve made it easy. Use one of 10X’s simple calculators to do your sums:

• Retirement annuity calculator
• Preservation fund calculator
• Living annuity calculator

Three rules of thumb for adequate retirement savings

It’s worth remembering that none of these formulas is guaranteed to help you retire well. They are based on what Andre has seen over the years and are offered here as a sobering reminder to have realistic expectations for the income retirement investments can generate for you once you are no longer working.

Multiply your final annual salary by 15

If, for example, your take-home pay is R25,000 a month in your final year of working, that would mean an annual salary of R300,000. To maintain your lifestyle after retirement, you’ll need around 15 times your annual salary, so 15 x R300,000, which is a lump sum of roughly R4.5 million.

However, that if you are hoping to do things you didn’t do during your working years, for example travel or hobbies, you should rather multiply your final salary by 17, or even 20 or more.

Save R1-million for every R5,000 you want to draw down as a pension every month

You can also get a rough idea of how much money you’ll need to have saved at retirement by assuming that you will need R1 million invested in an annuity for every R5,000 per month you want to draw as income once you’re retired. Thus, if you want to draw a monthly pension of R25,000 a month, you will need to have put away R5 million by the time you retire.

Multiply your monthly needs by 300

One of the simplest calculations is to multiply what you think you’ll need per month (say R25,000) by 300 to determine the lump sum you will need to have saved (R7.5 million in our example). This option gives a slightly higher figure than the other two options, which is a good thing!

Having tried one of those calculations, you’re probably thinking that you should ramp up your saving! And you should – as a country, we don’t save enough. According to the South African Reserve Bank (SARB) the average South African spends 75% of his/her paycheque on servicing debt. We also done our own research in the form of the recently published 10X Retirement Reality Report. In total, 71% of survey respondents indicated they had no retirement savings plan at all, or just a vague idea of one.

So, what can you do to help ensure a comfortable retirement?

Speak to a retirement specialist and get a plan together. There are no call centres at 10X. Andre and his team’s mission is to ensure that you make the right decisions for your retirement, and if you’re better off somewhere else, they’ll tell you.

Pay your future self, first. Don’t wait until the end of the month to save or invest. As soon as your salary comes in, invest a portion for your retirement. That way, you can spend anything that’s left in good conscience. This is a small change that can have massive, life-altering consequences.

Have the correct asset allocation within your investment portfolio. Being diversified in all asset classes throughout the retirement journey will ensure the protection of your capital.

Don’t pay high fees. Do your homework on your investment management fees, as they compound against you the longer you are invested. Use 10X’s Effective Annual Cost calculator or get a free Cost Comparison if you are unsure of your fees or feel your investments could be doing more for you. Do not fund someone else’s retirement - look after your own needs.

The truth is, as a country we are very good at sacrificing the long term in service of keeping up with the Joneses. The money you are spending now on servicing your debt or incurring expenses you don’t need to could be put towards your retirement plan or constructively invested elsewhere to ensure you will be comfortable in your golden years. Get a retirement plan in motion today and stick to it diligently. It’s your future.