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How much is enough to invest for retirement?

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Johannesburg – There is no exact answer to the question of how much you need to save to guarantee you'll have enough to live on during retirement.

Panellists at the Allan Gray Investment Summit on Thursday highlighted a number of factors and assumptions that are made when considering the matter.

Assuming you won't have a mortgage and will be debt-free, without dependants to provide for when entering retirement at the age of 65, you will be able to live on 75% of your last salary if you put away a capital sum of 17 times your last annual salary, explained Jeanette Marais, director at Allan Gray.

This also depends on whether you earn real returns leading up to retirement and if you withdraw sustainable amounts after retirement, while also avoiding mistakes along the way, she said.

Essentially, saving enough boils down to providing enough capital to sustain our lives after retirement, Marais said. If you need a measurement to check if you are on track with your savings, then after 10 years you need to make sure you have put away two annual salaries. After 20 years, this should be five annual salaries and after 30 years of work, you should have 10 annual salaries saved.

Retirement capital often gets eroded when people change jobs, and if this happens you may have to start saving up for retirement all over again. Starting to save at a later stage means you will have to make up for lost time by saving more or putting more capital away, explained Marais.

Start with a plan

Saving properly starts with a plan, including for the short and medium term. The earlier you start, the better as compound interest will take care of the returns, she explained. Thirdly, ensure you will earn real returns. “If you are not earning real returns from the moment you start saving right until retirement, then you will not reach your goals. Inflation is your biggest enemy,” warned Marais.

Also avoid switching. Some people think they can time the market perfectly to move into and out of unit trust funds. The chances of getting this right are small, said Marais. Lastly, make sure your portfolio is well diversified for risk and volatility.

“Invest in research and get a good independent financial adviser. Have someone on your side to keep on track with your plans.”

Winston Monale, strategic head for Absa Wealth, pointed out that one should consider the rising cost of living and the impact of inflation on retirement savings. Monale explained that one should not just take a quantitative approach to retirement, but a qualitative approach too. This qualitative approach involves partnering with a professional financial adviser.

“A good financial adviser will be able to assist in structuring investments more efficiently in order to get the best value out of that money.”

Mike Wilmot, head of investments at Nedbank Private Wealth, pointed out that it is also important to consider that people are living longer.

When asked if 65 is a reasonable retirement age, Wilmot said that people want to be productive, and in today’s world 65 is not necessarily a realistic age. This must be considered from a financial planning perspective as well as a well-being perspective, he said. 

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