It’s time to do the maths…
For a lot of people, hitting the big “four-oh” is the time when they realise that they should be saving for their retirement. Unfortunately for them, they’ve already missed out on 20-odd years of saving and earning compound interest, but with another 20 to 25 years to go, there’s still a lot that can be done.
Work out what you need
The first step, is working out how much income you’ll need every month when you retire. Start with your current monthly expenses and work out which are likely to fall away. Those that will fall away may include:
School fees
Bond repayments
Life insurance, depending on your dependants and debts
The remaining expenses will likely continue, and some items, like medical costs, will probably increase. You will also, in all likelihood, need to buy a car at some point in your retirement so don’t discount that expense entirely.
Once you’ve come to a monthly amount, multiply this by 12 (months) and again by the number of years you are likely to live after your retirement – 15 to 25 years is a fair range, so for the purposes of this calculation, we’ll go with the average of 20. This will give you a total sum to work towards.
Example:
Your monthly expenses (with school fees, bond and life insurance deducted) are currently R20 000. Multiplied by 12 and again by 20, this gives you a total of R4 800 000 to work towards.
R20 000 in 25 years’ time is going to buy you a lot less than it does today.
Work out how much you need to save
To get to R4 800 000, you need to work out how much you need to save every month for the rest of your working life. If you are 40, you have 25 years with 12 paydays each of saving ahead of you. That’s 300 paydays, which means that, using our example, to get to R4 800 000 you need to save R16 000 a month.
