How much you need to retire…and how a TikTok trend can help you save

Do you really know how much you need to retire and how to ensure you save enough? This is especially important since 89% of South Africans plan to work part-time post-retirement due to insufficient savings, with 40% relying on asset sales, family support and social grants to maintain their lifestyle.

This concerning trend is primarily attributed to the absence of a savings culture in South Africa, along with other contributing factors, such as a lack of retirement planning or insufficient funds for retirement, says Devmco Group commercial director, Brad Winstanley.

Plan ahead for retirement

“Although the prospect of saving may seem daunting, planning ahead for retirement ensures that the lifestyle you desire at the end of a hard-earned career can be truly fulfilled.”

According to Sanlam, you should have saved 17 times your annual salary after working for 40 years to retire comfortably. Discovery says many financial planners use a replacement ratio of 75% of your current salary and to set a target goal for this replacement ratio, a good estimate is to multiply your monthly salary by 200.

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The 75% replacement ratio – a rule of thumb to retire?

The total you get is the amount you would need if you retired today at a 75% replacement ratio.

For example, if you currently earn R40 000 a month, which covers your living costs with some money to spare: R40 000 x 200 = R8 000 000. Therefore, eight million is around the total amount you will need to have saved at retirement in today’s terms.

However, Discovery says the replacement ratio of 75% is just a rule of thumb, based on the assumption that you will not have a home loan or any other large debt by retirement age, which means your monthly expenses will be lower.

But people are living for longer and medical expenses tend to rise after retirement, which can affect the replacement ratio.

Everyone’s journey to retire unique

However, the journey to retirement in South Africa is far from standardised, Winstanley points out.

“The path to retirement is unique for each individual, with the required retirement fund based upon personal circumstances, aspirational goals and an array of external factors, including lifestyle choices, health considerations, inflation rates and anticipated investment returns.”

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Consider this when planning your retirement

As the question of how much you need to retire remains subjective, it is crucial to consider these ten key aspects when planning for a comfortable retirement:

• Define your retirement goals, outlining your desired lifestyle and financial objectives.
• Calculate your anticipated expenses, considering factors like housing, healthcare and inflation.
• Assess your current financial situation by evaluating your savings, investments and debts.
• Develop a realistic budget that aligns with your retirement goals.
• Create an emergency fund for unexpected expenses.
• Research and plan for healthcare costs, including health insurance premiums.
• Understand potential income sources, such as pension benefits.
• Strategically invest your portfolio and consider the impact of taxes on your retirement income.
• Remember inflation’s effect on your buying power.
• Regularly review and adjust your retirement plan to adapt to changing circumstances.

Winstanley emphasises that it is imperative to think about what you envision retirement to look like before entering this chapter to ensure that you are well prepared.

Apart from the financial aspects, many people actively search for a solid investment when retirement age draws near, often prioritising quality healthcare and preferring to be closer to their loved ones.

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How do you save enough money to retire?

Heather Bell, business development manager at Just SA, said the days are gone of silently trying to keep up with the Joneses.

“Loud budgeting” is taking centre stage highlighting that the truth about finances should be shared openly.

“This is particularly true when it comes to the money you save towards your golden years.”

She says loud budgeting started as a light-hearted joke, but has now turned into a trend to watch on TikTok and is now going global.

“This new mindset helps to ensure we stop living beyond our means and are totally honest about it.

“While this does not mean limiting our aspirations, it does link to the realities many of us face. In South Africa especially, with low economic growth and a relentlessly rising cost of living, having enough money to get by and to put towards your future requires a delicate balance.”

Be honest to yourself

Bell says it is important to be honest with yourself, your friends and your loved ones about your financial means to ensure you have enough money for your future.

The first thing to remember is that saving money for retirement may require some sacrifices today.

“Whether you are relying on your employer to help you save towards your golden years or doing it yourself through a retirement annuity or tax-free savings account, the reality is that you need time for wealth to compound. This will help you accumulate enough funds to buy a sufficient income for your retirement. “

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Declaring ‘loud budgeting’

Declaring “loud budgeting” to your family, friends and colleagues represents your ambition to make ends meet.

Instead of overspending, you are proudly prioritising crucial financial factors like your retirement contribution, which is a healthy alternative to being unable to afford to save, going into debt or having to live more frugally because you have run out of money, Bell says.

“While there are many temptations to part with your hard-earned cash, it is better to be in control to help you save enough money for your needs down the line. To complement this, a written plan is a good way to approach retirement with confidence.”

Financial self-care

What must you then consider about your golden years?

Bell says regrettably, many people avoid dedicating time to financial self-care.

“While spoiling family members or travelling are common, addressing crucial questions like whether you want to leave money behind for your family, or how much of your pre-retirement income you will be able to replace when you retire, should be considered as early as possible.”

A financial adviser can help you to tackle these and other questions and consider which post-retirement products will work for you depending on how much you have saved.

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Living annuity or a blended annuity?

Bell says many retirees find themselves hesitant to risk “losing” their hard-earned capital in the event of their passing, a risk associated with life annuities, although we are living longer and these pay an income for life or give you capital protection for an appropriate term.

“As a result, many retirees opt for a living annuity instead and quietly end up drawing down too much of their capital to sustain their pre-retirement lifestyle, which often results in running out of money too soon.” 

She says a blended annuity may be a better option, as it includes life as well as living annuity features in a single product, empowering you to tailor a well-balanced combination over time.

A financial adviser can help you choose the most suitable annuity product for your individual circumstances to optimise your retirement income, but it all depends on how you managed your budget before you get there.

“To make the preferred choice about your retirement income, you will need to be strong in your resolve to not waste money now and remember that silence is not golden. Be proud about your goal to save, embrace loud budgeting for the sake of your future finances and reap the rewards when your golden years arrive.”