According to a pensions industry body in the UK, a single person would require £31,300 (R733,000) annually for a moderate income in retirement.
The Pensions and Lifetime Savings Association (PLSA), which bases its estimates on insights from focus groups, categorises its calculations into three levels: minimum, moderate, and comfortable.
The data suggests that a single person would need £14,400 (R337,000) annually for a minimum income and £43,100 for a comfortable retirement.
For couples, the respective amounts are £22,400 (R524,000) at the minimum level, £43,100 for a moderate lifestyle, and £59,000 for a comfortable standard.
Under the estimates:
A minimum standard includes approximately £95 for a couple's weekly groceries, a week's holiday in the UK, dining out about once a month, and affordable leisure activities about twice a week.
A moderate standard includes additional expenses such as running a small second-hand car, a week holidaying in Europe, and a long weekend break in the UK.
A comfortable retirement encompasses luxuries like regular beauty treatments, theatre trips, and two weeks' holiday in Europe annually.
Pensions commentators consider these estimates a wake-up call, especially since the estimated amount for a moderate income closely matches the median average gross annual earnings of full-time employees, which stands at £34,963 (R817,000) according to official statistics.
South Africa retirement
According to a survey conducted by Debt Rescue in 2023, retirement is a more daunting prospect than death for 40% of South Africans.
The survey, which included over 1900 South African consumers aged between 25 and 65 years, revealed widespread apprehension and challenges regarding retirement among the country's citizens.
It highlighted the significant fears and obstacles individuals currently encounter in building savings for retirement, with prevalent concerns including the high cost of living, unemployment, and personal debt.
The fact is, the vast majority of South Africans have little to no retirement savings.
In South Africa, the average salary is R26,894 (StatsSA). According to some experts, to get a good estimate of what you'll need, take your current salary and multiply this by 200.
This means that by the time you retire, you will need to have saved R5 378 800 for your retirement.
For a nice round number, if you earn R30,000 a month and multiply this by 200, you arrive at R6 million. That would give you approximately R300,000 annually over 20 years, excluding additions like interest, further investment and inflation.
The amount of money you need to retire comfortably in South Africa varies greatly depending on factors such as your desired lifestyle, retirement age, life expectancy, inflation rates, and other personal circumstances.
However, financial advisors often recommend aiming to replace around 70-80% of your pre-retirement income to maintain a similar standard of living during retirement.
So how much is enough? Determining that depends on various factors, including your desired lifestyle, anticipated expenses, retirement age, life expectancy, inflation rates, and any potential sources of retirement income such as pensions or social security benefits.
Financial advisors often recommend aiming to replace around 70-80% of your pre-retirement income to maintain a similar standard of living during retirement.
Many retirement experts recommend strategies such as saving 10 times your pre-retirement salary and planning on living on 80% of your pre-retirement annual income.
That means if you make R360,000 (R30,000 monthly) annually at retirement, you will need R4 320 000 at retirement - you need at least R288,000 per year to have a comfortable lifestyle after leaving the workforce, or R24,000 per month.
Another general rule of thumb for a comfortable retirement is 15%, notes Gus Van Der Spek, developer of upmarket retirement village Wytham Estate.
“15% of your salary should be put aside for your entire working career of around 40 years. For those wanting to retire in luxury, 20%-plus is advised. Also, bear in mind that what R1 is worth now will differ by the time that you retire."
Van Der Spek shares advice given by financial planners saying, “multiply your needs by 300. Simply put, if you currently live on R50,000 per month, multiply this by 300 to determine what you will need to maintain a luxury lifestyle post the age of 60.”
Van Der Spek’s comments are in line with retirement expert Andre Tuck, a senior Investment consultant at 10X Investments.
Tuck also points to three crude ways to ‘guesstimate’ your retirement goal:
1: Multiply your final annual salary by 15
If your take-home pay is R25,000 a month in your final year of working, giving you an annual salary of R300,000 - to maintain your lifestyle after retirement, you’ll need around 15 times your annual salary, so 15 x R300,000, meaning a lump sum of roughly R4.5 million.
If you are hoping to do things you didn’t do during your working years, for example, travel, you should rather multiply your final salary by 17, or even 20.
2: Save R1-million for every R5,000 you want to draw down as a pension every month
You can also get a rough idea of how much money you’ll need to have saved at retirement by assuming that you will need R1 million invested in an annuity for every R5,000 you want to draw a month once you’re retired.
So, if you want to draw a monthly pension of R25,000 a month, you will need to have squirrelled away R5 million by the time you retire.
3: Multiply your monthly needs by 300
One of the simplest calculations is to multiply what you think you’ll need per month (say R25,000) by 300 to determine the lump sum you will need to have saved (R7.5 million in our example).
This option gives a slightly higher figure than the other two options, which is a good thing, said Tuck.
PSG Wealth notes the following:
Assuming a set 6% interest rate, with the aim to retire at 65 and draw R20,000 a month for the next 20 years, an investor would need roughly R2.79 million at retirement.
An investor who starts putting away about R1,000 a month at the age of 20 will save around R1.34 million more than the person who starts saving R1,000 at age 30.
To counter this loss, the 30-year-old will need to increase their monthly contribution to almost R2 000. The lesson to understand from this is that the less time you spend on an investment product, the more you will need to contribute at a later stage to make up for the shortfall.
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