Optimising your retirement savings from 30 to 65

It’s a sad fact that South Africa has a terrible savings rate (0.5% to be exact) compared to the rest of the world and even our emerging market peers. Now, more than ever, South Africans must start prioritising planning and saving for their retirement!
The experts at Fidelity Investments recommend that you should save at least 10 times your annual salary in 2023 for a comfortable retirement at 65. While this might seem challenging, especially in the current economic climate, it’s a crucial target to achieve!

The latest Baseline Survey on Financial Literacy in South Africa paints a concerning picture:
– 46% of adults said they live only for today and don’t worry about providing for tomorrow,
– 44% of adults said they are not actively saving, and
– Over 20 million South Africans (a third) said they have no plan for retirement.

As the population ages and life expectancy rises, it is concerning to think that South Africans will be forced to work until they simply can’t anymore, simply because they are not prioritising saving for their retirement. And given the economic uncertainties and pension fund unpredictability, it is not wise to depend on state benefits.

Mmakgoshi Lekhethe, Deputy Director-General of Asset and Liability Management at the National Treasury underscores this concern, “We are worried about the statistics for people who expect to rely on government pensions because, in the absence of growth, we do not want to end up with a society that relies on government handouts as opposed to saving money for their own future.”
“The financial decisions we make today will significantly impact our security and our standard of living given the current economic condition that people find themselves in, and therefore saving and being money smart is a strong foundation towards securing your future,” Lekhethe added.

To ensure a comfortable and independent future, we have to start building individual financial safety nets through retirement savings.

Knowing how much to save for retirement is of course crucial in this journey to financial security. You can work on the recommendation of 10 times your annual salary, but your savings amount will also depend on when you start saving or when you want to retire. It will also differ from person to person.

If you opt for an earlier retirement at 60, for example, you will need to save more to compensate for the extra five years without income. On the other hand, if you can (want to) retire at 70, you may require less because you worked three additional years.

Below is a practical approach to achieving your retirement goals with savings milestones based on your age (courtesy of Fidelity Investments). If you can achieve these milestones, you will have enough money to retire without scaling down your lifestyle or spending. They may seem intimidating, but the earlier you start saving, the more years you’ll have to achieve your goal, and the more manageable it will be:
– By age 30: Save the equivalent of your annual salary.
– By age 40: Aim for three times your income.
– By age 50: Strive for six times your income.
– By age 60: Target eight times your income.
– By age 65: You’ll have 10 times your income.

For example, if you earn R240k annually, you’ll aim to have R240k saved by the time you’re 30, R720k by 40, R1.44 million by 50, R1.92 million by 60, and R2.4 million by 65.

As we mentioned, these saving milestones might look different for each individual, but they will help you reach your retirement savings goal or get you going if you have not started saving at all. Either way, it’s a win-win.

It’s also important to note that these guidelines include savings in your retirement accounts and investments like index funds. However, the actual savings needed may vary based on your lifestyle and income.

At mCubed Group, we are committed to helping you secure a comfortable and financially stable retirement. Members, clients, and participating employers in our retirement funds benefit from top-tier investment administration, expert advice, exceptional service, and complete transparency for optimal long-term results. Our team of FAIS-accredited financial advisors is dedicated to guiding you toward a future of financial soundness and prosperity. Take charge of your financial destiny and contact us today.