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Extra savings for retirement

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(Shutterstock)
A Fin24 user wants to know how much more he has to save in order to have the same income once he retires. He writes:

I have only about 15 years before retirement. Due to the fact that I have not always been employed, I have only accumulated about R350 000 in my provident fund.

I live within my means and with a salary of about R17 000 before deductions and about R13 000 after deductions.

I realised that I need to save additional money for my "retirement".

My provident deduction is about R1 000 per month and a year ago I started contributing an additional R650 per month towards this fund.

In addition, I took out more policies from Old Mutual - for which R850 per month is deducted - for the same duration as the above, which is about 15 years.

How much more would I have to save towards a retirement plan to have an "equivalent" of what I am earning now?

Is this based on before or after deductions having been made?

Sinenhlanhla Nzama, product marketing actuary at Old Mutual, responds.

As you have acknowledged, the amount you have saved up to now seems to be much lower than it should be if you were to get your desired retirement income in 15 years’ time.

It is time to consider some drastic actions, including an increase in the current amount you save each month.

Below is a rough estimation of what you could possibly do going forward. However, please consult a financial adviser, who will do a full financial needs and affordability analysis.

Increase your contribution

Given you have R350 000 saved already, to be able to have an income of R13 000 a month in retirement, you should be increasing your total monthly savings to at least R7 700 for the next 15 years.

This includes both the provident fund and the retirement annuity contributions (assuming an investment return of 8% a year after costs and increasing contributions by inflation of 6% a year).

This amount could be too high and unaffordable.

Remember some alternatives

Most people are expected to have reduced financial needs when they retire, as some costs reduce or disappear.

You could consider reducing the income you require in retirement to be around R10 000 a month, which is more than 75% of your current after-deduction salary.

This would mean you need to be saving a total of at least R5 400 a month going forward.

Consider putting a portion or all of your future employment bonuses into your retirement saving. This will go a long way in boosting your savings.

Retire later
   
Another alternative is retiring later.

This would allow you more time to save towards the desired level of retirement income and also means you need a bit less accumulated by the time you retire later.

Speak to a financial adviser, who can assist you with a suitable financial plan with various alternatives considered in detail.

- Fin24

Do you have a pressing financial question? Post it on our Money Clinic section and we will get an expert to answer your query. 

Disclaimer: Fin24 cannot be held liable for any investment decisions made based on the advice given by independent financial service providers. 

Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.


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