Saving for retirement: What you need to know

Too often, people find themselves in the later stages of their lives, realising they don’t have enough money to retire and need to continue working to earn money until it’s no longer possible. The inability to afford retirement is a fear that’s shared by both older and younger generations. Saving for retirement shouldn’t be a big mountain that you have to climb, but can actually be an easy stroll if you do it right.

Know your moola

When beginning to plan for retirement (which ideally should be as early as possible), a tactical move would be to take stock of all your accounts, assets, debt, cash, etc. Not having knowledge of all financial aspects of your life is like driving your car but only looking through the windscreen — having no mirrors, and no side or rear windows will eventually end in disaster. You won’t know what you have unless you take stock. It’s much harder to steer through life with parts of your financials in the dark.

Luckily, you can link all your accounts to your 22seven app to get a full overview of all your money stuff!

A common misconception that leaves you anxious

Most people find the idea of saving for retirement daunting because all too often, retirement is equated to travelling all over the world in your 60’s or chilling on a yacht all through your 70’s. But in reality, retirement is often based on a humble amount of money and might not be as unachievable as you think. Determining how much you will need to retire will greatly help with relieving stress and eventually reaching a comfortable retirement.

Although everyone’s situation is different, this calculation can be used as a broad guideline of how much you will need to retire. Take your expected annual expenses and multiply that by 20. If you want to retire earlier, you will have to multiply it by 25, 30 etc.

Here’s a practical example.

Monthly Expenses:

Rent: R10,000
Medical aid: R3,000
Food: R3,000
Other expenses: R4,000
= R20,000

R20,000 x 12 = R240,000 to live for one retired year. Multiply this by 20.
This means you’ll need R4.8 million to retire.

That’s a scary number — here’s how to manage it

We know, we know. Dumping the idea on you that you will need R4.8 million to retire is a lot. But the good news is, you don’t actually have to save R20,000 a month to have R20,000 a month in retirement. If you start early, the magic of compound interest will do this for you.

If you save R3,000 a month at 8% a year, it will take you 30 years to save for retirement. Like we said: the earlier you start, the better. Because without compound interest, your hypothetical R3,000 a month will only equate to little over R1 million after 30 years, as opposed to R4.8 million with compound interest.

Savings vehicles

The good news is that there are a number of ways in which you can save for retirement that will grow the hypothetical R3,000 a month over time. This includes pension funds, retirement annuities, and other investments. It takes R3,000 a month to fill your Tax Free Savings Account to the brim, so start with that. Retirement annuities offer substantial tax rebates, which will form a core component in further saving. If your employer offers a pension, this is a good foundation to use for saving as well.

The beauty of saving for retirement is that it acts as a catalyst, often helping you save more, invest more, and most importantly, learn more along the way — leaving you with more opportunities and insights on how to grow your money.

Written by @lisaslippers101020