Plan ahead for your retirement

Insurance and investment companies suggest that you need at least 70 per cent of your final salary as pension.

This means that you have to save at least 15 per cent of your gross monthly salary for 40 consecutive years. Very few people ever succeed.

The facts however show that even if you retire with 70 per cent of your final salary as pension, and cut your expenses to 60 per cent of your usual expenses, with an inflation rate of five per cent you will start running short within five years.

The problem is really that in the past most pensions escalated annually, whereas today’s pension schemes provide only what you paid in plus a bit of interest, which is neutralised largely by inflation.

It boils down to your getting out what you had put in over the years.

Don’t be misled by promises of large payouts. Insurance companies never give the figures of what your payout really will be worth 20, 30 or 40 years from now.

At an average inflation rate of eight per cent, a lump sum of R22 million promised to you now only will be worth R850 000 40 years from now, providing a pension of R3 500 per month, which will be worth only R720 per month after 20 years.

The only way to ensure a carefree retirement is having multiple income streams that generate an income that keeps up with inflation.