A common question that Andre Tuck, the Team Lead at 10X Investments, often encounters is: How much do I need to retire comfortably?
Clients frequently turn to him for his extensive experience in the financial services industry to gain a realistic perspective for their retirement plans.
The answer often surprises them. But before diving into the specifics, it’s crucial to understand that time is the key factor in this equation.
The amount you need to save for retirement depends on your current age. This starting point helps determine your time horizon.
Starting early allows you to benefit more from the compounding growth of your investments.
If you’re invested in the right product with a reputable investment manager, think of it this way: your monthly contributions + consistency + time = a better chance at a good return on your investment.
Want to see what’s possible between now and your retirement? Use one of 10X’s simple calculators to do your sums:
Three Rules of Thumb for Adequate Retirement Savings
These formulas aren’t guaranteed to ensure a comfortable retirement. They are based on Tuck’s observations over the years and serve as a reminder to have realistic expectations for the income your retirement investments can generate once you stop working.
Multiply Your Final Annual Salary by 15: For example, if your take-home pay is R25,000 a month in your final working year, that equates to an annual salary of R300,000.
To maintain your lifestyle after retirement, you’ll need around 15 times your annual salary, which is roughly R4.5 million. If you plan to travel or pursue hobbies post-retirement, consider multiplying your final salary by 17 or even 20.
Save R1 Million for Every R5,000 You Want to Draw Monthly: To get a rough idea of how much you’ll need at retirement, assume you need R1 million invested in an annuity for every R5,000 per month you want to draw as income.
So, if you want a monthly pension of R25,000, you’ll need to save R5 million by retirement.
Multiply Your Monthly Needs by 300: A simple calculation is to multiply your expected monthly needs (say R25,000) by 300 to determine the lump sum you’ll need (R7.5 million in this example).
This method often results in a higher figure, which is beneficial.
After trying these calculations, you might realise the need to increase your savings. As a nation, South Africans don’t save enough. According to the South African Reserve Bank (SARB), the average South African spends 75% of their pay check on debt.
The 10X Retirement Reality Report also found that 71% of respondents had no retirement savings plan or only a vague idea of one.
Steps to Ensure a Comfortable Retirement
Consult a Retirement Specialist: Get a plan together with a specialist. At 10X, there are no call centers. Andre and his team aim to help you make the right decisions for your retirement, even if it means advising you to go elsewhere.
Pay Your Future Self First: Invest a portion of your salary for retirement as soon as you receive it. This small change can have significant, life-altering consequences.
Ensure Correct Asset Allocation: Diversify your investments across all asset classes to protect your capital throughout your retirement journey.
Avoid High Fees: Research your investment management fees, as they compound against you over time. Use 10X’s Effective Annual Cost calculator or get a free Cost Comparison to ensure your investments are working for you. Prioritise your own needs over funding someone else’s retirement.
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